US retail sales disappoint in May

US retail sales disappointed in May, rising just 0.1% m/m against a median forecast of 0.3% m/m. The April data was revised lower to -0.2% m/m from 0.0% previously, and March figures were also revised down. Some of the softness was due to lower petrol prices - excluding gasoline, retail sales rose 0.3% m/m last month. Nevertheless, the data points to some financial strain on consumers, leading to curbs on spending. Separately, industrial production in May rose by more than forecast at 0.9% m/m, as factories increased output last month.

Eurozone CPI for May was in line with the preliminary estimate at 0.2% m/m and 2.6% y/y. Core inflation was unchanged at 2.9% y/y last month. The focus today will be on UK inflation data ahead of the Bank of England’s MPC meeting on Thursday. Headline inflation is expected to hit the 2% target in May, but the market expects the BoE to keep rates unchanged at 5.25% this week as wage growth remains high, core inflation is still well above target, and ahead of the general election on 4 July.

The UAE moved up three places to 7^th place in the World Competitiveness Ranking, which is put together by the International Institute for Management Development (IMD). The UAE scored highly for infrastructure, tax regime, and a business-friendly environment. The UAE is the only GCC country ranked in the top 10 most competitive countries this year, with Singapore in the top spot. Qatar and Saudi Arabia moved up one place each to rank 11^th and 16^th respectively.

Dubai CPI declined -0.2% m/m in May as food, clothing, entertainment, and hospitality prices fell relative to April. This was offset by a 0.5% m/m rise in housing costs however, along with modest increases in the cost of household durables and miscellaneous goods and services. The annual inflation rate slowed to 3.8% y/y in May from 3.9% in April, and the average inflation in the first five months of the year was 3.6%.

Today’s Economic Data and Events

10:00 UK CPI (May) forecast 0.4% m/m and 2.0% y/y, previously 0.3% m/m and 2.3% y/y

10:00 UK Core CPI (May) forecast 3.5% y/y, previously 3.9% y/y

Fixed Income

• US treasuries rallied after weaker than expected retail spending data for May. 2y yields fell -6bp to 4.71% on Tuesday as did the 10y yield which closed at 4.22%.
• New York Fed president John Williams and Richmond Fed president Thomas Barkin both said the recent economic data was encouraging, but that more data was needed to be confident about disinflation before the Fed could comfortably start to lower rates.
• US markets are closed on Wednesday for the Juneteenth holiday.

FX

• The USD spot index weakened at the start of the week with CHF gaining the most against the greenback on Tuesday. EUR was broadly stable at 1.07 while GBP gained 0.2% to 1.2689. JPY weakened to over 158/USD on Tuesday but is a touch firmer this morning in Asia.
• Among the commodity currencies, AUD gained 0.2% on Tuesday and is up another 0.7% this morning after the RBA kept rates on hold at this morning’s meeting and struck a hawkish tone. Governor Michelle Bullock said the board considered a hike at today’s meeting because of persistent inflation but in the end decided to keep rates unchanged.

Equities

• US equities closed higher on Friday, with the S&P500 reaching a new all-time high of 5487. The index was up 0.25% on Tuesday while the DJIA gained 0.15%. The Nasdaq 100 was largely unchanged, although Nvidia became the company with the largest market capitalization in the world, displacing Microsoft from the top spot.
• European stocks also rallied yesterday with the EuroStoxx50 up 0.7% and the FTSE100 gaining 0.6%.
• Local markets were closed on Monday and Tuesday for Eid holidays.

Commodities

• The API reported US crude inventories rose by 2.3mn barrels last week, but the market shrugged this off with the overall risk-on tone buoying oil prices. Brent gained 1.3% yesterday to close at USD 85.33/b while WTI rose 1.5% to USD 81.57/b.