Wawasan Ekonomi

Economic Insights

US Retail Sales unexpectedly rise 0.8% in July

The US retail sales rose 0.8% in July for the first time in four months as demand climbed for goods ranging from cars to electronics, a sign that decent demand from the consumers may imply the jobs market improvement, and also could drive the Q3 growth higher from the consumer spending part.Click the image to enlarge

The upbeat US retail sales released yesterday more or less officially put the QE3 off the table towards the end of the year. Thus, I see a huge rally from the USDJPY. However, investors are still going to pay attention to the Jackson Hole meeting and the US Non-Farm Payrolls (NFP) data due early in September, and that will most likely to be the final call from the Federal Reserve (Fed) whether they want to implement further more aggressive monetary policy towards the end of the year; from the recent data, it simply suggests that the chance for further easing in 2012 is very low, close to zero.

Euro Zone Q2 growth signals the region could stay in recession for a prolonged period

The Euro Zone’s Q2 Gross Domestic Product (GDP) fell by 0.2% q/q as budget deficit cut and worsen debt crisis pushed the currency bloc into a recession, while Germany Q2 growth is 0.3% q/q thanks for the good shape economic structure though the growth is slower than the first quarter at 0.5%. German ZEW (Zentrum für Europäische Wirtschaftsforschung) Index dropped for the 4th consecutive month amid the regional debt crisis.Click the image to enlarge
Click the image to enlarge

The bloc currency seems to be paying little attention on the disappointed data as all these negative factors have been priced in more or less. Recently less fresh negative news and hopes on the European Central Bank (ECB) to act bolstered the regional risk assets. The borrowing cost for the countries in trouble such as Spain and Italy is still very high, which is one of the main threats to the countries’ growth; another tough task will be deficit cut. The current bleak outlook can’t create much tax revenue for the governments, thus the goal for budget deficit cut is more difficult to reach.

Bailout certainly could lift the confidence of the Euro Zone. However once the US economy picks up and moves forward from here, the US dollar would continue to outperform the EURUSD or better known as ‘Fibre’ given its much healthier outlook. Regarding the recent European Stability Mechanism (ESM), which could help boost the firewall by EUR 700 billion, and the German court doesn’t intend to delay the date of verdict.