US Retail Sales Economic Data Will Impact Markets

Economic Growth in US Remains Weak but Consumer Spending is Strong….

Q2 growth in the US was driven by consumer spending. When the figures were reported, real GDP growth came in at just 1.2%. This was released by the BEA (Bureau of Economic Analysis). In Q1, real GDP advanced by 0.8%, and this was preceded by Q4 2015 GDP growth of 0.9%. Clearly, the US economy is growing at a slower pace. Fortunately, growth has been fuelled by consumer spending, and despite the shortfall in expectations (consensus forecast on 29 July 2016 was 2.6%) growth remains positive. The next GDP data release will be announced on 26 August 2016. The consensus forecast among analysts is real GDP growth of 1.2% with the reference being Q2.

It should be pointed out that personal consumer expenditure has grown at the fastest pace in over a year even while GDP is growing at a slow pace. Credit cardholders have increased their expenditure, but there have been declines in consumer staples and discretionary spending. Retail industry demand is weaker, and this is shared by the CEO of Ford Motor Corporation, Mark Fields. That consumer confidence has waned is evident across the board. Starbucks CEO, Howard Shultz was bamboozled by the performance in Q3 and he admits that quick service restaurants and competitors are facing an uphill battle across the board. Even the home TV retail shopping network, QVC has reported weaker sales across the board. According to the CEO, Michael George, ‘… We have really not seen this kind of swing before outside of a couple of quarters around the great recession timing in 2008 or early 2009…’ Ominous tones like that have been echoed by CEOs throughout the US.

How is the GBP Performing of Late?

The GBP/USD currency pair is currently trading at 1.3006, up 0.0585% or $0.0008. The pair has come in for a battering in 2016, largely the result of the Brexit referendum. For the year-to-date, the pair is down 11.76%, after reaching 1.4789 on 23 June 2016 and falling precipitously to a low of 1.2916 on 8 July. Since then the GBP has managed to eke out small gains, consolidating in a range between 1.31 and 1.33 before falling to its current level of 1.3006. The recent performance of the sterling is due in part to the measures adopted by the Bank of England Monetary Policy Committee (MPC). The GBP is naturally a casualty of quantitative easing, as more sterling on the markets decreases the demand for the currency and weakens it accordingly.

Companies like Delta Air Lines have felt the pinch with the depreciation in the GBP. Walgreens Boots Alliance CEO, Stefano Pessina, described the Brexit -related concerns as extremely volatile. According to him, it’s too soon to tell what the impact will be, but it will take at least two years to understand the implications of a Brexit. Other companies are less convinced that a Brexit will have the impact that pessimists have been punting. Viacom expects a slowdown, but has not seen any significant impact as yet.

Crude Oil Whipsaws but Returns to Growth

Brent crude oil is currently trading at $44.83 per barrel on the ICE exchange. WTI crude oil is trading at $42.55 per barrel on the Nymex, down 0.51% or $0.22. While there has been a period of stabilisation with crude oil, since both benchmarks are trading above $40 per barrel, volatility remains a concern. Fortunately, a meeting of OPEC members in September has bolstered confidence in this commodity and it is likely that earnings will improve as a result. However, nobody wants to get too far ahead of themselves in the energy sector given the lack of sustainable pricing. The VP of Exxon Mobil, Jeffrey Woodbury is confident of strong demand, but the issue that remains a source of deep concern is huge stockpiles of crude oil. For now, the most pressing concern for US economic growth will be the report on Friday, 12 August for US retail sales month on month and year on year.