18 August 2021
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US Retail sales data disappoints

By Daniel Richards

  • Data out of the US was somewhat mixed yesterday, but following other weaker readings around the world, and relatively bearish words from Fed officials, the market focus seemed to be on the more negative aspects as equity markets stumbled and oil prices dipped. Retail sales in the US contracted -1.1% m/m in July, and while the June growth figure was revised up from 0.6% to 0.7%, the July print came in worse than the anticipated -0.3% contraction. Buying activity was seemingly hampered by ongoing availability issues, rising prices, waning stimulus, and the reversion to normal spending habits, as people turned their focus to reopened hospitality provisions through the summer months. The recent dip in consumer confidence as the Delta variant surges could see this deteriorate further.
  • The other major data point from the US yesterday was industrial production, which actually exceeded expectations as it grew 0.9% in July, up from a downwardly revised 0.2% growth in June. The July figure beat expectations of 0.5% growth. Manufacturing expanded 1.4%, putting it back above pre-pandemic levels. The production surge was driven by automotive which grew 11.2%, but with the ongoing global chip shortages, this could be unwound in the coming months.
  • Eurozone GDP growth came in at 2.0% q/q in Q2, in line with expectations and an improvement on Q1’s -0.3% contraction. The economy has benefitted from the easing of most of the restrictions on activity which remained in place in the first quarter, alongside a vaccination programme that accelerated after a sluggish start. On a y/y basis, growth was 13.6%. Austria and Portugal were among the biggest q/q growth beneficiaries, though this can largely be attributed to base effects given they also saw some of the biggest contractions in Q1. Of the biggest economies, Germany grew 1.5% q/q, France 0.9%, Italy 2.7% and Spain 2.8%. Growth across the EU was 1.9%.
  • Labour market data from the UK was positive yesterday, as the headline unemployment rate fell to 4.7%, down modestly from the 4.8% recorded previously, although this will likely tick up once more when the furlough scheme comes to an end at the close of September. Following from the record 10mn job vacancies in the US, the UK has also posted a record number as the number of openings climbed to 953,000 in July. The number of people in employment climbed 182,000 from June to July and is now just 201,000 lower than it was prior to the pandemic, while the number of people on government’s furlough scheme has fallen to new lows. Earnings growth excluding bonuses hit 7.4% y/y, up from 6.6% previously, but the ONS noted that these figures are skewed by the lower wages recorded at the height of the pandemic crisis a year ago, and that the true growth figure is somewhere around 3.5-5.0%. The Bank of England will be watching wage growth data closely, wary of any signs that this is feeding through to accelerating price growth or elevated inflation expectations, but there was nothing in this data release which should push them into any hasty moves.
  • The Kuwaiti government has instructed its state entities to trim spending by 10% as it looks to narrow the record KWD 10.8bn budget deficit recorded last year.

Today’s Economic Data and Events

10:00 UK CPI y/y, July. Forecast: 2.3%

16:30 US housing starts, July. Forecast: 1.6mn

Fixed Income

  • USTs were little moved ultimately after a relatively choppy session yesterday, but the general trend was for lower yields following weaker-than-anticipated retail sales and fairly bearish comments from some Fed officials.
  • The 10-yr yield dropped -0.3bps to 1.2617% while the short end saw the 2-yr gain 0.4bps to 0.2133.
  • Fed Chair Jerome Powell cautioned yesterday that the Covid-19 pandemic would continue to make the recovery uncertain for the time being. Neel Kashari warned that there would be ‘broader economic implications’ and that any rate hikes were probably a ‘few years away.’ Robert Kaplan, who has previously made the case for imminent tapering, is set to speak today, and we also have the release of the FOMC minutes later tonight.
  • The RBNZ held rates steady at 0.25% this morning. The expectation earlier in the week had been that the central bank would hike rates as the economy showed signs of improving, but the recently imposed lockdown results in a hold. The bank indicated that it would have hiked if not for recent developments, and a rate hike later this year remains likely.


  • The New Zealand dollar lost -1.4% against the greenback yesterday. Commodity currencies were already under pressure after the disappointing data out of China at the start of the week, but this has been exacerbated by subsequent pandemic developments. Following a positive case found in Auckland, Prime Minister Jacinda Aherne has put the country under a three-day lockdown, pledging to go short and strong rather than long and light. Having depreciated yesterday, the NZD was little changed against the dollar following the RBNZ’s announcement.
  • The dollar index closed up 0.5% to 93.130 yesterday, as the greenback gained against all its major pairings. Aside from the NZD the AUD was the other big mover, dropping -1.2%, while sterling lost -0.8%. The USD is benefitting from its haven status as concerns about the global recovery rise.


  • While the Shanghai Composite managed to shrug off the weak data releases from China at the start of the week to close flat on Monday, sentiment turned yesterday as the index lost -2.0%. High-profile exits from Chinese equity markets will have also weighed on the index.
  • Selling pressure was prevalent across Asian markets as the Hang Seng lost -1.7%, the Nikkei -0.4% and the KOSPI -0.9%. The exception was in India where the recovery from the last wave of Coivid-19 has seen stocks bounce back in recent weeks – the Nifty closed 0.3% higher and the Sensex 0.4%.
  • Having brushed off earlier disappointing data over the past week, US equities took a hit following the weak retail sales print yesterday. The S&P 500 and the Dow Jones both came down off recent record highs as they fell -0.7% and -0.8% respectively, while the NASDAQ dipped further with a -0.9% loss.
  • The FTSE 100 managed to gain 0.4% yesterday but most other major European equity markets stumbled also. The DAX closed flat while the CAC lost -0.3%. The composite STOXX 600 eked out a 0.1% gain.


  • Both major oil benchmarks remained under pressure yesterday as key global data points continued to disappoint, raising questions regarding the sustainability of current demand projections.
  • Brent futures declined -0.5% to USD 69.0/b, levels last seen in mid-July. WTI declined even further, dropping -0.7% to USD 67.3/b.
  • The API reported that inventories declined by 1.16mn bbl last week.

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Written By

Daniel Richards Senior Economist

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