Consumer confidence may be key for markets going forward, reports Adam Button.
The U.S. consumer came through once again on Thursday with strong numbers in the June retail sales report and that helped lift the U.S. dollar.
The U.S. dollar was the top performer in the forex market Thursday while the Australian dollar lagged. Friday, the euro was the biggest gainer behind the Swiss franc (CHF) as traders were waiting on the EU's effort to finalize the €750 billion ($865.5) recovery fund over the next few days.
European stocks and bonds have rallied on optimism of a historic accord. But negotiators are playing down the chances. Major U.S. stock indices continue to diverge, this time NASDAQ on the down after Netflix said it expected 2.5 million new users in Q3, less than expectations and far below 10.1 million subscribers gained in Q2. The US consumer will stay in focus Friday with the University of Michigan consumer sentiment survey.
The EU Summit will discuss the €500 billion ($571 billion) in debt given as grants and €250 ($285.5) in loans. Angela Merkel expects "very, very difficult negotiations". Note that the euro began its latest rally phase about six weeks ago when Germany and France first announced the €750 billion proposal.
U.S. Consumer Confidence
The old adage about never betting against the U.S. consumer held true once again on Thursday as sales rose 7.5% compared to 5.0% expected. Incredibly, sales are now up 1.1% y/y and 2.9% excluding gasoline stations.
Within those numbers, there are some massive changes. Sales at food services and drinking places are down 26.3% year-over-year while clothing stores are down 23.2%. On the flipside, non-store sales (online) were up 23.5% and home improvement stores were up 17.3%. There has also been a notable jump in auto sales, which were up 7.5%. The Beige Book also noted tight auto inventories and higher prices. On that front, China followed a similar path but shortly after the reopening, auto sales began to flag.
The numbers emphasize the high stakes as Congress debates another stimulus package because at the same time, U.S. initial jobless claims were at 1.3 million, higher than the 1.25 million expected. That still doubles the pre-pandemic record and the pace of improvement has slowed. More than 18 million Americans are still receiving some form of unemployment benefit.
The market remained jerky and choppy Thursday and Treasury yields were lower. The mood favored risk-off trades and the dollar held a solid bid.
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