US retail sales beat again, market-economy gap continues to widen
Matt Weller, CFA, CMT February 12, 2016 2:25 PM
<p>After an extremely volatile week, traders are no doubt feeling a bit apprehensive about the future. After all, global stocks have now entered a “bear market” (20% decline in the MSCCI World index), <a href="http://www.forex.com/post?SDN=95c111fe-cf64-4d7f-94cd-e11e601a82c6&Pa=20db1fa6-e674-420c-9a87-2ee29261d638">USD/JPY</a> briefly traded down over 1000 pips in less than two weeks, and US 10-year treasury yields are <a href="http://www.forex.com/post?SDN=e039215b-8270-44b6-936f-c809d8551c68&Pa=20db1fa6-e674-420c-9a87-2ee29261d638">approaching all-time lows</a>, a threshold that many global bonds have already reached. Surely all this risk-off trading is can be chalked up to declining economic growth? Based on the recent data out of the world’s largest economy at least, the answer is “no.”</p>
After an extremely volatile week, traders are no doubt feeling a bit apprehensive about the future. After all, global stocks have now entered a "bear market" (20% decline in the MSCCI World index), USD/JPY briefly traded down over 1000 pips in less than two weeks, and US 10-year treasury yields are approaching all-time lows, a threshold that many global bonds have already reached. Surely all this risk-off trading is can be chalked up to declining economic growth? Based on the recent data out of the world’s largest economy at least, the answer is "no."
Over the last couple weeks, traders have seen top-tier US economic reports come out relatively mixed. On the worse-than-anticipated side of the ledger, both ISM PMI reports came out below economists’ expectations, as did the headline number of jobs in January’s Non-Farm Payrolls report and the Q4 advance GDP reading. That said, we also saw strong readings on wage growth and average hourly earnings, the ADP employment report, and just today, a better-than-anticipated retail sales report.
According to the census bureau, US retail sales rose 0.2% m/m, better than the 0.1% reading eyed by analysts; the "core" retail sales report, which filters out volatile automobile purchases, also beat expectations at 0.1% m/m growth vs. 0.0% expected. Excluding the decline in gasoline prices, retail purchases rose at a healthy 0.4% m/m rate. The gains were paced by rapid increases in online purchases (up 1.6%), at general merchadise outlets (0.8%), and on autmobiles (up 0.6% after a 0.5% gain in December).
With today’s retail sales report representing just the most recent evidence that the US economy is, at worst, continued to muddle through, it’s hard to square the decent economic data with the sharp declines in investor sentiment. Traditional economists view the current market conditions as one of the all-to-frequent tantrums that traders throw, but argue that the present volatility will blow over soon, leading to a rapid return of risk sentiment. More pessimistic investors note that market sentiment tends to be a leading indicator for the economy (though perhaps one that’s too sensitive; as the saying goes, "the stock market has predicted 9 of the last 4 US recessions), and just because the US economy appears to be on reasonable footing doesn’t rule out the possibility of bear market.
We tend to fall somewhere in the middle: we’re not calling for a global economic recession at this point, but anticipate that we haven’t seen the end of the current spate of market volatility. When it comes to actionable levels to watch, we remain hyperfocused on the critical 1790-1830 support zone in the S&P 500. If that level gives way, fears about slowing economic growth may start to become a self-fulfilling prophecy and a deeper drop would become likely. On the other hand, a bounce through off that floor and back toward the 2000 area would suggest that the stock market is catching back up to the decent economic figures of late.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.