FX View Will US CPI PPI and retail sales data reinforce the NFP story

FX View Will US CPI, PPI and retail sales data reinforce the NFP story?

Kit Juckes US employment data were unambiguously weak, and he focus now shifts to CPI and PPI (with the market expecting +0.3% for core PPI and +0.2% for core CPI). Thursday also sees retail sales data, which deserve some attention because one of the contentions about the US’ K-shaped economy, is that most consumers are feeling the pinch from higher costs.

As of last Tuesday, the futures market held short positions against the USD in all the G10 currencies for which there are contracts (i.e., not including SEK and NOK), but apart from CAD, the shorts were shrinking. There were long positions in BRL, MXN and ZAR. The net USD long remained very high, though it had fallen by over a quarter. I imagine that the dollar short has fallen further since then, as more positions were squeezed out by Friday’s jobs data.

The employment data were weak, with no serious excuses even if some point to a seasonal trend of soft July prints. The focus now shifts to CPI and PPI this week (with the market expecting +0.3% for core PPI and +0.2% for core CPI). Thursday also sees retail sales data, which deserve some attention because one of the contentions about the US’ K-shaped economy, is that most consumers are feeling the pinch from higher costs. Soft retail sales (the market is 0.1% headline, 0.2% ex autos and 0.3% ex autos and fuel) would reinforce the message from the employment data, push rate hikes further into the long grass and probably throttle my end-year forecasts. Suffice to say, I’m rooting for upside surprises in all tree data princes this week, albeit in hope rather than expectation!

There are two central bank policy meetings this week; the RBA tomorrow and the Norges Bank on Thursday. We would be very surprised by a move from either, but for the RBA in particular, any guidance about the outlook will matter. These are this year’s top two G10 currencies and while they won’t need much encouragement to rally further, the market will react to any surprise.

Otherwise, we continue to wait and see if there will be further US/Japanese intervention to reinforce the desire to see the yen’s sell-off end and watch for UK output and trade data (though GBP is unusually sleepy at the moment). There isn’t much European news, but the Swiss franc’s fall may have stalled as a result of the softer US data and soft CPI/PPI prints could trigger CHF short covering…

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