Yesterday was all about the US retail health, and the sales data looked good at the first sight. But in reality, it was mixed. The US retail sales grew 1.7% in October, up from 0.8% printed a month earlier and better than 1.2% penciled in by analysts. That was the best month since March, however the jump was mostly because things costed more due to an inflation hovering around a three-decade high.
The good news is that people could spend more to buy less, the bad news is that an increasing number of people see their purchasing power hit significantly, the savings are melting and the most affected households’ pullback could, at some point, hit the headline number. As such, the strong retail sales data from the US is a half good news.
The same goes for the US big retailers that revealed their Q3 results yesterday. Both Walmart and Home Depot announced better than expected sales. A part of it was thanks to people spending more for buying less, although a part of it was still a higher demand. The transactions at Walmart for example increased 6% compared to the same time last year, and people spent 3% more at the register. At Home Depot, on the other hand, the amount people spent jumped by 13% from last year to $82 per visit. As a conclusion, the retail story is not all rosy or all depressive. It’s just greatly influenced by the decent rise in consumer prices, which could tilt the economic risks lower if nothing is done. Yes, I am looking at you, Jerome.
Overall
The overall market sentiment was upbeat yesterday on strong US retail sales and an ok-ish meeting between Joe Biden and Xi Jinping. The two talked for 3.5 hours in a meeting with no concrete outcome. The major take was that the relationship didn’t get worse than what it already was, and that’s good to open dialogue for the future. But yesterday’s Biden-Xi summit was a small battle in a long war.
In other news, the Beijing Olympics could be a no-go for the US. There has been a proposal of diplomatic boycott made to Joe Biden, in response to China’s human right abuses. So, there are a lot of things that could go wrong anytime.
Nasdaq led gains yesterday even though the strong retail sales boosted the expectations of a tighter Federal Reserve (Fed) policy, but Asia chose not to follow up on US session gains. The sentiment was rather mixed.
In the FX, the US dollar continues gaining field against the majors, while euro is retreating at a sustained speed. The EURUSD slipped below the 1.13 mark on the back of diverging European Central Bank (ECB) and Fed expectations, where the Fed hawks are slowly getting in charge of the market while Christine Lagarde does everything to keep the hawks away. She reckoned at a speech on Monday that inflation proved more sustained that they expected, but she still expects it to fade next year. Let’s all hope that inflation would magically fade. The problem is, if the ECB remains this ignorant, while the others start tightening, well the single currency will soften, and the softer euro will be an additional boost for inflation in the Eurozone.
