DOLLAR INDEX - FUNDAMENTAL ANALYSIS
US: Debt ceiling talks, retail sales and jobless claims
Despite inflation concerns easing somewhat last week, at least for the near term, markets still remain in a risk-off as debt ceiling talks linger. President Biden is expected to continue debt-ceiling talks with Congress leaders on Tuesday after last Friday’s meeting was postponed. The market is increasingly getting worried about a US default, and bond volatility and a switch to safe-haven assets will likely continue as talks linger and the X-date of June 1 doesn’t see a clear delay. Spending cuts could also bring pressure on sectors like defense that are heavily dependent on government spending.
The other battle that the market continues to fight is to justify the current aggressive rate-cut pricing for this year, which remains at odds with economic data. The Michigan survey on Friday hinted at inflation becoming embedded in the long term, and the focus will shift to the growth side of the story this week. Tuesday’s retail sales print will be a test of the strength of the US consumer, while industrial production will be on watch to see if they confirm the uptick seen in PMIs. Headline retail sales are seen rising 0.8% M/M in April, offsetting some of the 0.6% M/M decline in March, core (ex-auto and gas) retail sales are seen up 0.2% M/M (prev. -0.3%), while the Control Group is expected to be up by 0.3% M/M, after -0.3% in March. Thursday’s jobless claims will also be key to watch after last week’s higher-than-expected print has sparked concerns of a cooling in the labor market. If the trend extends further, we could see a material shift in next month’s non-farm payroll expectations due on June 2.
Despite inflation concerns easing somewhat last week, at least for the near term, markets still remain in a risk-off as debt ceiling talks linger. President Biden is expected to continue debt-ceiling talks with Congress leaders on Tuesday after last Friday’s meeting was postponed. The market is increasingly getting worried about a US default, and bond volatility and a switch to safe-haven assets will likely continue as talks linger and the X-date of June 1 doesn’t see a clear delay. Spending cuts could also bring pressure on sectors like defense that are heavily dependent on government spending.
The other battle that the market continues to fight is to justify the current aggressive rate-cut pricing for this year, which remains at odds with economic data. The Michigan survey on Friday hinted at inflation becoming embedded in the long term, and the focus will shift to the growth side of the story this week. Tuesday’s retail sales print will be a test of the strength of the US consumer, while industrial production will be on watch to see if they confirm the uptick seen in PMIs. Headline retail sales are seen rising 0.8% M/M in April, offsetting some of the 0.6% M/M decline in March, core (ex-auto and gas) retail sales are seen up 0.2% M/M (prev. -0.3%), while the Control Group is expected to be up by 0.3% M/M, after -0.3% in March. Thursday’s jobless claims will also be key to watch after last week’s higher-than-expected print has sparked concerns of a cooling in the labor market. If the trend extends further, we could see a material shift in next month’s non-farm payroll expectations due on June 2.
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