Market Drivers for May 21, 2015
Europe and Asia
CNY: HSBC PMI 49.1 vs. 49.4
EUR: EZ Flash PMI Man 52.3 vs. 51.8
EUR: EZ Flash PMI Services 51.4 vs. %1.9
GBP: UK Retail Sales
North America
USD: Jobless Claims 8:30
USD: Philly Fed 10:00
USD: Existing Homes 10:00
UK Retail Sales blew past estimates, showing strong pickup in consumer demand which helped to lift the pound by more than 100 points in morning London trade.
Cable soared to a high of 1.5667 in the wake of better than expected data that saw UK Retail Sales rise by 1.2% versus 0.4% eyed. Spending rose 1.8% on a month over month basis, indicating that consumers are not only willing to pay more, but to purchase a higher volume of goods and services as well.
Average prices fell 3.2% versus last year with energy costs dropping the steepest at -11.5%. Some of those declines are unlikely to repeat themselves as oil prices have moderated, but the fact that the UK consumer is clearly happy to increase spending in the wake of higher wage growth and lower gas prices is good news for the UK economy and welcome sign for the BoE.
The transmission mechanism of higher wage growth and better spending is likely to expedite the normalization process for BOE and trader reacted positively to the data keeping cable well bid at the 1,5650 level. If US economic reports prove disappointing later in the day, sterling could climb to 1.5700 as the global day proceeds.
Elsewhere, the EZ Flash PMI data came in mixed with Manufacturing a bit better but Services dropping slightly. PMI Manufacturing printed at 52.3 versus 51.8 eyed while Services came in at 53.3 versus 53.9 projected. Germany was laggard seeing its Manufacturing decline a bit more to 51.4 versus 52.1 the month prior. Although the overall figures show expansion, the rate of growth in EZ has clearly stalled and shows that ECB will have to remain vigilant in its QE effort to ease credit conditions further and stimulate economic activity.
The euro seesawed but popped higher in the aftermath of the news, dragged there by anti-dollar flows and remained at 1.1150 for most of the EU session. Yesterday's slightly dovish FOMC minutes continue to weigh on the greenback, but today's eco data could provide the dollar with a boost if it comes in above expectations. The Existing Homes number will be of particular interest to the market as it could confirm that the housing market is coming back and would therefore add to the growth in Q2 of this year.