Tags: retail | sales | dollar | investors

Strong Dollar Proves Retail Sales Data Wrong

shopping cart and roll of dollars close up shot

By    |   Friday, 15 February 2019 12:03 PM

December retail sales rather shocked financial markets yesterday by seeming to imply that American consumers had abandoned their lifelong favorite pastime of shopping.

Investors can probably breathe easily however. Continued firmness of the dollar shows that something was wrong with Thursday’s retail sales numbers.

With the information available at this moment, it’s fairly safe to say that this can be filed away under the heading of dodgy data, at least to some extent. Anyway, I certainly wouldn’t conclude from the retail sales numbers that a recession is near.

In the meantime, the dollar remains firm with the dollar index DXY remaining above the 97 line

Why would retailers keep more staff working than usual in January if December’s sales had been so terrible? In fact, this was the second best January for retail employment in almost 30 years. 2017 was slightly better, but otherwise you would have to go back to 1990 to find a so strong January. Wages for retail workers also stayed high.

Johnson Redbook retail sales hit an all-time high of 9.30 percent in December 2018. The main street retail business sentiment index was at the highest since 2006. Admittedly, that’s a sentiment survey, so it should be treated with caution, but the retail sales data just does not fit in.

This is a general problem with economic data these days. You really can’t trust the numbers, as CNBC.com explained.

Meanwhile, Congress passed a bipartisan deal to avert another shutdown and President Donald Trump has pledged to use his presidential personal authority to build a wall. President Donald Trump’s intention is to redirect a little over $7 billion dollars from other programs. There will now be a series of legal challenges, The Guardian reports.

The question now is “Do financial markets care?” On the surface we could say, “probably not,” at least not in the near term, but there are some potential implications for financial markets.

For one thing, money is likely to be diverted from other programs and there is the fact that a number of Republicans have expressed disquiet that the idea of what is in fact a military command over government spending.

That matters because consumer confidence has been supported by very positive Republican sentiment which was largely political rather than economic in nature.

If Republicans are less politically supportive of Trump, then consumer sentiment may fall, although that would have nothing to do with the actual economy.

Meanwhile, U.S. consumer sentiment rebounded by more than forecast from a two-year low after the government shutdown ended and the Federal Reserve signaled it would hold off on interest- rate hikes, reviving optimism on the economy.

The University of Michigan’s preliminary February sentiment index rose to 95.5, exceeding the median forecast in a Bloomberg survey for an increase to 93.7.

However, good or bad doesn’t make the sentiment data any more reliable.

Over in the Euro area, Spain’s Prime Minister, Pedro Sánchez, has called a snap election for April 28 after Catalan secessionists joined rightwing parties in rejecting the socialist government’s national budget on Wednesday.

The country’s third general election in less than four years was seen as an inevitability following Pedro Sánchez’ defeat on Wednesday, The Guardian informs.

Unlike the United States, there is no prospect of a Spanish government shutdown. Spain will keep using last year’s budget agreement until the new government will have voted a new budget agreement.

Opinion polls suggest a fragmented Parliament but with little prospect of an anti-party or Populist Party getting anywhere near power.

As such, investors are not likely to be too concerned, but there will be more political noise, of course.

Besides that, Eurostat, which is the European Statistical Office, released its first estimate for Euro area trade in goods that shows a 17 billion euros (USD $19.2 billion) surplus in December 2018, which represents a decrease of 2.5 percent compared to December 2017.

For December 2018 exports also declined 2.5 percent while imports rose 1.9 percent compared to the trade numbers of December 2017.

In December 2018, trade with the United States showed a Euro area surplus of 9.1 billion euro ($10.26 billion), which was down from 10.9 billion euros (USD $10.3 billion) in December 2017 or about 16 percent.

Meanwhile, the euro stays tilted to the weaker side, remaining below the $1.13 per euro line

As an investor, for now at least, I wouldn’t look for safe alternatives for holding funds available outside the U.S. dollar area.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Investors can probably breathe easily however. Continued firmness of the dollar shows that something was wrong with yesterday’s retail sales numbers.
retail, sales, dollar, investors
Friday, 15 February 2019 12:03 PM
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