Daily Market Digest: Japan retail sales falls, US consumer spending rises

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The markets extended the risk on a rally for the second day as equities rallied. GBPUSD was also seen trading higher off Brexit lows. In Japan, retail sales remained weak for the third straight month. In the US, consumer spending picked up along with personal income rising modestly.

Today’s Economic events

  • Japan retail sales y/y -1.90% vs. -1.60%
  • Australia HIA new home sales m/m -4.40% vs. -4.70% previously
  • Swiss UBS consumption indicator 1.35 vs. 1.24 previously
  • German Gfk consumer climate 10.1 vs. 9.8
  • UK Nationwide HPI m/m 0.20% vs. 0.10%
  • Spain flash CPI estimates y/y -0.80% vs. -1.0%
  • UK net lending to individuals m/m 4.3 billion vs. 2.9 billion
  • UK M4 money supply m/m 1.20% vs. 0.10%
  • UK mortgage approvals 67k vs. 65k
  • US Core PCE price index m/m 0.20% vs. 0.20%
  • US personal spending m/m 0.40% vs. 0.40%; personal income m/m 0.20% vs. 0.30%

Coming Up

  • The US pending home sales
  • US Crude oil inventories
  • US bank stress test results
  • New Zealand building consents

Japan’s retail sales fall 1.90% in May (YoY)

Retail sales data released by Japan’s Ministry of Economy, Trade and Industry earlier today showed that retail sales slumped 1.90% on the year in May. This marks a third straight month of decline on sluggish demand and low fuel prices. The declines were more than what analysts expected who penciled in a 1.60% decline. In April, Japan’s retail sales fell 0.90%. On a month over month basis, retail sales were flat in May, following April’s 01.0% declines.

The retail sales report showed that department store sales were down 5.10% on the month as spending from overseas consumers slipped while the recent slump in the stock market saw many tighten their purses. Food and beverage sales jumped 0.60% on the month, but the increase was slower than April’s increase of 2.40%. Apparel sales fell 0.20% while fuel sales were down 12.80% marking twenty straight months of declines. In its assessment, the ministry expects retail sales to remain weak.

JPMorgan economist Masamichi Adachi, however, called the report “not so bad.” He said, “as labor income has been increasing steadily, and fiscal spending probably will support low-income pensioners by then.” Adachi points out that the retail sales data does not track the Cabinet Office’s consumption index which is a key predictor for GDP consumption and says, Friday’s household spending data could offer more insights.

Australia new home sales fall for the second month

New home sales continued to decline for the second month in a row in May. Data from the Housing Industry Association (HIA) showed a 4.40% decline in May, which slightly better compared to April’s 4.70% declines. Weak sales came with detached housing sales which fell 6.70% while multi-unit sales rose 4.90%. HIA Chief Economist, Harley Dale said that the trend of the past two months could be repeated in the period ahead.

“There is nothing alarming to a reversal in the trend for new home sales. There is a cyclical downturn ahead for new residential construction activity, as new home sales signal, but the early pull-back will be mild by historical standards” Dale said.

On the housing market, the Australian Bureau of Statistics will be releasing the building approval numbers for May, next week which showed a consistent increase over the past months bucking the slowdown.

UK consumer lending shows a modest improvement in May

Consumer lending in the UK increased in May with Britons borrowing 4.3 billion pounds during the month. This was slightly higher than April’s borrowing of 1.4 billion, data from the Bank of England showed today. Mortgage credit also increased, rising 2.8 billion on the month with the number of approved mortgages rising from 66,205 in April to 67,042 in May. However, analysts point that following last week’s referendum vote on the EU, housing prices are likely to fall. Ahead of the referendum, house prices jumped 5.10% in June on a year over year basis, up from May’s 4.70% increase.

In Brexit related news, the markets continued to extend their gains from Tuesday. EU and UK leaders agreed that further negotiations would continue when the UK elects a new leader, despite some EU leaders preferring for a more quicker solution. The current status quo means that the markets could see a temporary period of lull in terms of Brexit related volatility. GBPUSD which previously fell to lows of $1.3121 was seen extending its gains, trading at $1.343 by mid-European trading session.

Equity markets were also trading in the positive with the London FTSE100 rising 2.26% on the day while the DAX was up 1.93%. On Tuesday, US markets closed in the positive and pre-market futures trading showed a positive open.

US Consumer spending, income rises in May

Consumer spending and personal income both rose in the month of May, data from the US commerce department showed today. Consumer spending, which is considered a key contributor to the US economy increased 0.40% in May on a month over month basis, matching consensus estimates. April’s consumer spending was also revised higher from previous estimates of 0.40% to 0.50%. Personal income increased 0.20% on the month, posting a subdued increase compared to April’s revision from 0.40% to 0.50%, suggesting that the US labor markets remained healthy despite a setback in the May jobs report.

The Personal Consumption Expenditure or PCE Price index increased 0.90% on a year over year basis in May, following a 1.10% increase in April. Analysts expected to see a 1.0% increase on the month. The core PCE stood at 0.20%, rising at the same pace as in April and matching estimates.

Yesterday, the Conference Board’s consumer confidence data showed an improved outlook with the confidence index rising to 98.0 in June, compared to May’s downward revised 92.40. The data beat analysts’ expectations of 93.3 for the month.

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