EUR: Improvement in German Trade Masks Underlying Weakness
AUD: Worst Trade Deficit in Nearly 5 Years
CAD: Gold Prices Up Nearly 1%
NZD: Building Permits Fall 5.4%
JPY: Finance Minister Aso Expresses Interest in ESM Bonds
The British Pound sold off against the U.S. dollar and held steady against the euro following a slowdown in annualized retail sales growth last month. According to the British Retail Consortium, the total value of goods sold rose 1.5% year over year and on a like-for-like basis, rose only 0.3%. This suggests that it has been a weak holiday shopping season in the U.K. with consumer spending held back by fears of softer growth in 2013. Retail analysts described it best by saying that it is “a flat end to a flat year.” Since the BRC report tends to have a strong correlation with the official retail sales release, we would not be surprised to see retail sales decline again in December.
Ahead of tomorrow’s Bank of England announcement, today’s domestic focus falls on the UK’s trade performance. In October, the UK’s trade deficit in goods widened to £9.5bn from £8.3bn in September driven by an unhelpful combination of rising imports and falling exports. November should see some improvement, reflecting the reported increase in oil production (which we expected to be reflected in the industrial production release on Friday). Lloyds TSB forecast the goods deficit narrowing to £8.6bn. Excluding this effect, we also envisage some improvement in the ‘core’ goods balance. Looking ahead, the relative weakness of the export component of key business surveys suggests the weaker trend in global activity could subdue the still upbeat trend in non-EU export volumes. Nevertheless, the surplus in the services balance has remained resilient to such global weakness so far. This is likely to continue to offset some of the goods shortfall and we see the total trade deficit at £2.7bn in November.
The euro ended the North American trading session lower against the U.S. dollar. The Japanese government’s interest in buying ESM bonds failed to lend support to the euro even though bond prices across the region benefited from the news. European stocks including the German DAX gave up its earlier gains to end the day lower as the S&P 500 declined for the second day in a row. Yesterday was a busy day for Eurozone data but mixed economic releases provided investors with little clarity. Germany’s trade and current account surpluses increased in the month of November but with exports and imports falling sharply, the improvement is not necessarily indicative of stronger economic activity. As a result of the decline in exports, factory orders dropped 1.8%. Eurozone confidence improved but retail sales also grew less than expected. This suggests that while consumers and businesses are slightly pessimistic, there’s still not enough improvement in the economy to turn everyone into optimists. This may be important to remember as we head into Thursday’s European Central Bank meeting because it could be a stance that the ECB adopts as well. In the meantime, the decline in factory orders points to a potential downside surprise in tomorrow’s German industrial production report. EUR/CHF ended the day unchanged despite an increase in Switzerland’s unadjusted unemployment rate. Joblessness rose to 3.3% from 3.1% but remain unchanged at 3% on a seasonally adjusted basis.
German industrial production is expected to rebound in November, partly in response to October’s sharp 2.6% monthly decline. However, yesterday’s weak factory orders reading and the fall in exports suggest that industrial activity is likely to remain weak over the coming months.
With U.S. stocks falling for the second day in a row, the dollar traded higher against all of the major currencies except for the Yen, which continued to succumb to profit taking. So far it has been extremely quiet in terms of U.S. data and with nothing on the calendar today, earnings and the performance of the stock market should continue to drive currency flows.
Australian Retail Sales missed their mark printing at -0.1% versus 0.3% eyed. This was the worst monthly reading since May of 2012 and the second negative month out of the last four. The largest drop in Retail Sales came from household goods which declined by 0.9% followed by clothing which fell by 0.6%. Department stores saw same store sales contract by -0.4%.
Overall the pre-Christmas month of November was a decided disappointment as consumers Down Under retrenched especially on the more durable items while maintaining their spending on restaurants and cafes. The news suggests that growth in Q4 is likely to be lackluster as the Australian economy continues to cool off in response to more temperate demand for basic commodities from China.
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