16 June 2021
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Mixed US data ahead of the Fed

By Edward Bell

  • US retail sales fell by more than expected in May, declining -1.3% m/m.  The April figure was revised higher to 0.9% from 0.0% previously, suggesting that overall retail sales has held up over Q2. Car sales declined -3.7% m/m in May but sales of food & drink services increased 1.8%, back to pre-pandemic levels.
  • Industrial production increased by slightly more than forecast 0.8% m/m in May, with the production of cars starting to recover.  However, labour and materials shortages may still be weighing on the recovery in manufacturing. This was also reflected in rising producer inflation, with PPI up a faster than expected 0.8% m/m and 6.6% y/y in May.
  • The US and the EU reached a deal to scrap subsidies on passenger aircraft developed by Airbus and Boeing, ending the long-running trade dispute which had led to tariffs being imposed by both parties in 2019. The levies were suspending in March 2021 as negotiators worked towards the deal announced yesterday.
  • The UK’s unemployment rate fell to 4.7% in the three months to April, down from 4.8% previously as 113k new jobs were recorded.  PAYE data for May suggested employment increased by 197k last month as well, while there were almost 93000 fewer people claiming unemployment benefits relative to April.  Average weekly earnings grew 5.6% y/y in the three months to April, also this was partly due to last year’s low base. Nevertheless, the data points to an improving labour market as the UK services sector has reopened.    
  • Consumer prices in Saudi Arabia rose 0.2% m/m and 5.7% y/y in May, up from 5.3% y/y in June.  Food price inflation has slowed but remains high at 7.4% y/y while transport costs grew 0.5% m/m (19.3% y/y) reflecting higher oil prices relative to a year ago.  Clothing & footwear, household equipment & furniture as well as miscellaneous goods & services prices also increased m/m in May.  This was partially offset by lower housing costs, which account for 20% of the consumer basket.  We expect the headline inflation rate to slow sharply from July, when last year’s VAT rate increase falls into the base.
  • Japan’s core machine orders came in much lower than forecast in April, up just 0.6% m/m and 6.5% y/y, against consensus expectations of a 2.5% m/m (8.0% y/y) gain. This may reflect ongoing coronavirus restrictions as non-manufacturers’ orders declined sharply. Strong export growth (50% y/y) likely supported growth in manufacturers’ core machine orders.  

Today’s Economic Data and Events

  • 10:00 UK CPI (May) forecast 0.3% m/m and 1.8% y/y
  • 16:30 US housing starts (May) forecast 1630k (3.9% m/m)
  • 22:00 FOMC rate decision

Fixed Income

  • US Treasuries had a grinding day amid mixed economic data out of the US and ahead of the FOMC which concludes today. Yields on 2yr USTs edged higher but ultimately were up by less than 1bp while 10yr yields moved up to as high as 1.51% before easing back to settle the day essentially unchanged at around 1.4922%.
  • We don’t expect to see any change in policy announced by the Fed today though they may clarify the conditions in which they will pull back on accommodative policy. Revisions to their economic projections, particularly in light of recent high inflation prints, will also grab the market’s attention.
  • Several of the new regional issues priced overnight with Dubai Islamic Bank pricing a USD 5yr sukuk at 110bps over midswaps and Dubai Aerospace at 175bps over Treasuries. Turkey launched a USD 5yr sukuk with a target rate of around 5.5%.


  • Currency markets were largely quiet ahead of the FOMC. There was some movement mid-day in the value of the DXY index but it closed essentially unchanged. EURUSD managed to gain but held to moves of less than 0.1%, similar to USDJPY.
  • Sterling was the notable underperformer as cable sank mid-day, falling to as low as 1.4034 during the session. However, it managed to recover and ended the day lower by 0.2% and is holding around 1.4080 at present.
  • Commodity currencies were broadly softer against the dollar overnight with USDCAD rising 0.3% and both AUD and NZD weakening by the same amount.


  • Global equity markets settled mixed overnight. US markets closed down with the S&P 500 giving up 0.2% and the NASDAQ settling lower by 0.71%. European markets were more positive, however, with the FTSE gaining 0.36%, likely abetted by a softer pound, while both French and German markets were higher.
  • Asian markets have started on a soft footing today, tracking the weakness in the US. The Nikkei is off by 0.2% while the Hang Seng is down 0.15% and the Shenzhen Composite is down by almost 0.6%.
  • Local markets were generally higher although gains were held to less than 0.1% in Abu Dhabi and Dubai. The Tadawul dipped 1%, however, thanks to weaker performance among financials.


  • Oil prices extended recent gains and Brent has now pushed well above USD 74/b and WTI is above USD 72/b. For the Brent market, USD 70/b would appear to be the new floor with a potential retest of the 2018 high of USD 86.74/b a possibility. However, we would note that levels above USD 80/b were hit and retreated from in short order. Likewise in WTI a level around USD 77/b would be the next clear target if positive momentum remains intact.
  • Oil also benefitted from a drop in US crude stocks of more than 8m bbl last week, according to reports from the API. Both gasoline and diesel inventories rose, however. Official EIA data is out later this evening.

Click here for charts & tables

Written By

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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