• US industrial output exceeds expectations
• Price of US petrol jumps
• GBP trading at four-year highs against USD
The US economy will be in focus again today as the crowd looks to the follow-up data for initial jobless claims after last week’s surprisingly bullish report. Later, we’ll see a new estimate of sentiment on Main Street in the US with the weekly release of the Bloomberg Consumer Comfort Index. Meanwhile, keep an eye on GBPUSD, which has been rising on a bullish tide of encouraging macro numbers since last summer.
US Initial Jobless Claims (12.30 GMT)
Today’s weekly update on the number of newly unemployed workers will probably be the main event for macro. What’s more, the odds look encouraging for a bullish shot of adrenaline if we see a better-than-expected number.
Recall that last week’s data showed a dramatic decline in claims to a seasonally adjusted 300,000. That’s the lowest since 2007. If it holds, this leading indicator is signalling that the economy will be creating jobs at a faster pace in the months to come.
But maybe economic growth really is accelerating, in which case last week's data isn't an anomaly. That seems to be the message in yesterday’s report on industrial production, which jumped more than expected in March (with an added bonus: February’s gain was revised sharply higher). The snapback in the macro trend, in short, rolls on. The rebound is bubbling in payrolls too although economists expect that the outlook isn’t quite as strong as last week’s claims data implies. The consensus forecast sees today’s number rising moderately to 312,000 for the week through April 12. But if there’s another downside surprise waiting in the wings, it may be time to upgrade the outlook for employment and the economy generally.
US Bloomberg Consumer Comfort Index (13.45 GMT)
The improving state of the economy seems to be spilling over into the all-important consumer sector. Retail sales in March posted a faster monthly increase vs. February. Meanwhile, consumer confidence rose to a nine-month high in the preliminary April estimate of the Thomson Reuters/University of Michigan Sentiment Index. “Economic news reaching consumers grew more favourable in early April,” noted the survey’s director. “Net reports on changes in employment were more favourable, and negative mentions about current economic policies eased.”
That’s encouraging news, of course, but the weekly readings of the Consumer Comfort Index (CCI) suggest it’s premature to flash the “all clear” sign. In the latest update, CCI dipped to its lowest level in two months. Although employment growth has picked up lately, so has the price of petrol. This may be weighing on consumers, according to Langer Research Associates, which produces CCI for Bloomberg. “While the economy added a solid 192,000 jobs in March, unemployment remains at 6.7 percent, with long-term joblessness still disconcertingly high,” the company said in a statement last week. “Moreover, as noted, gasoline is up sharply, climbing 40 cents since early November to USD 3.60 per gallon. Unemployment and rising gas prices both strongly negatively correlate with consumer sentiment.”
By that reasoning, we may see more weakness in today’s sentiment data. Regular petrol prices in the US rose again last week, climbing to the highest level since last September, according to the US Energy Information Administration. Will the steeper cost of driving continue to squeeze consumer expectations? Today’s CCI report should have an answer.
GBPUSD
The UK’s macro data has been on a roll lately. The latest signs of progress: a fall in the jobless rate to 6.9 percent, the lowest in five years. Meanwhile, real wages posted the first gain in several years. Quite a lot of Britain’s rebound over the past year or so is largely due to higher consumer spending. But there’s growing concern that sustaining the recovery will require a broadening of economic growth beyond retail sales. In particular, a rise in business investment and exports is sorely needed, say economists.
With the pound rising in sympathy with stronger economic numbers these days, the outlook for a substantial rise in exports looks unlikely. For example, sterling has been trading near four-year highs against the US dollar lately, and so the price tag for UK exports has followed suit. In fact, if the economic news continues to signal growth, the Bank of England may be forced to raise interest rates sooner than expected. In turn, that may boost GBPUSD higher still in a world still hungry for higher yields.
But nothing moves in a straight line, even a currency that’s linked with the best performer among the big economies in the West at the moment (based on projected GDP growth for 2014 via IMF data). In fact, GBPUSD seems to be turning after its latest leg up. That’s not particularly surprising. The trailing 20-day return for GBPUSD has been relatively lofty in recent days, touching the 76th percentile late last week, or the highest in more than a month. No wonder, then, that the bears have had the upper hand in subsequent sessions. Until the trailing return falls to relatively middling terrain, the correction could have more room to run.
