US retail sales sizzle and lead stronger economic data

Forex news for North American trading on February 17, 2021.  

The US retail sales for the month of January came out sizzling hot at +5.3% vs. 1.1% expected. The other measures including ex auto, ex auto and gas and the control group also showed big beats (the control group rose 6.0% vs. 1.0% expected. The move corresponded with the $600 stimulus check received by millions of consumers. Electronics and appliances so the biggest increase with a gain of +14.7%

Also higher today was the producer price index or PPI which advanced by 1.3% vs. 0.4% estimate (for January).  The gain was a largest since 2009. The sharp rise suggests inflation at the door of the factory was on the upswing and could be a leading indicator for a push higher in consumer prices down the road.  The gain was led by a 1.3% rise in the price of services which was the biggest gain since December 2009.  The cost of good also showed a strong 1.4% gain. With the price of commodities continued to move higher, expectations for higher producer prices can be expected going forward as well.

The combination of the retail sales and the producer price index could lead to higher expectations for inflation down the road. Yields on  treasuries have been moving higher with the yield curve steepening as well. That dynamic offer is indicative of the markets expectations for higher inflation. The shorter end yields however remain near record low yield levels as the Federal Reserve has suggested that rates would stay low for an extended period of time with the Fed less concerned about inflation and more concerned about seeing employment move back toward pre-crisis levels.

In other data, industrial production and capacity utilization was also stronger than expectations, and NAHB housing market index inched up to 84 from 83.

Forex news for North American trading on February 17, 2021.  

In the forex market, the JPY was the strongest of the majors as investors moved into the “relative safety of the JPY”.  All the JPY crosses were lower (higher JPY) led by the CHFJPY (-0.86%) and the EURJPY (-0.67%).  The USD was mostly stronger as well with most of its gains vs the CHF (+0.72%), the EUR (+0.52%) and the NZD (+0.36%). The greenback was near unchanged vs. the CAD and AUD, and down vs vs the JPY (-0.15%).  The better data helped to support the buck.  

Despite the stronger retail sales and PPI data, yields along the treasury curve fell with the yield curve flattening for change. The moves can be attributed to some flows out of the higher flying stocks (Nasdaq and Russell 2000 declined) and into the treasuries. Both the 10 year and 30 year yields traded to cycle highs (highest levels in a year) with the 30 year reached 2.11% at the highs today (closing near 2.05%).  Although traders lowered yields today, it did not spillover into the 20 year bond auction.   The treasuries $27 billion auction was sloppy at best with a 2.3 basis point tail (1.92% vs 1.897 WI level).  That makes one wonder if the fall in yields was more of an aberration vs. reality.  We will see going forward. 

US yieldsIn other markets, 

  • Spot gold fell some $18 on the back of the higher dollar today.  The price low reached $1776.13. That was just above the swing low from December 1 (and the lowest level since July) at $1764.80 read the current price is trading at $1776. WTI crude oil futures
  • WTI crude oil futures had an down up down and back up day, as the Arctic freeze the US sent prices initially higher, but headlines that Saudi was set to reverse the unilateral production cuts sent the price down toward a retest of its 100 hour moving average. After support held, the price reversed back higher and is currently trading at new session highs at $61.73.
  • The price of bitcoin moved above the $50,000 level and stayed above. The digital currency reached an all time high price of $52,584.95

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By Jonathan Prop

Jonathan Prop is an independent financial advisor. He has been working in finance for the last 20 years. After retiring early in his 40s, Jonathan decided to help others get to grip with financial markets, particularly his area of expertise - forex!

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