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US retail sales disappoint, dollar retraces

By Margaret Yang, CMC Markets

S retail sales see stagnant growth in July 

The US retail sales were flat in July, which fell short of the 0.4% as initially expected. This was also lower than June, which saw a growth of 0.6%. Weak retail growth signals the cooling of discretionary spending despite strong job data in the last two months.

Separately, US Producer Price Index (PPI) unexpectedly dropped 0.4%, compared to forecast of 0.1% growth in July amid declining costs for service and energy goods. This also suggests that inflation could stay lower in the near future.

These two factors combined have dampened market’s expectation towards a rate hike this year. According to Bloomberg’s world interest rate probability forecast, the implied probability of a 25bps rate hike in the month of September has dropped to 16%, which is the lowest level in a month. As a result, the dollar weakened against its peers.

US equities retraced from the historical highs due to lackluster retail sales and closed marginally lower.

Crude oil rebounded sharply on OPEC talks

Oil prices rebounded sharply last Friday, extending its ‘V’ shape rebound after touching $40 dollars in early August. In spite of DoE’s increase of crude inventory in these three weeks and rising forecast of US domestic production, it is the informal gathering of OPEC members in September that brought anticipated hopes of alleviating the crude oil output freeze into the market. Yet, it remains to be seen how far this optimism could lead the crude rebound. The immediate support and resistance levels for WTI Sep contract can be found around $41.60 and $45.89 area.

Crude Oil West Texas Sep 2016

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Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.