- Overnight in Asia the Shanghai Composite gained 0.7% while Japan dropped 0.4% after disappointing EPS for retailers yesterday and skittishness prior to this morning’s retail sales print for April; MSCI Emerging Markets Index: +2.5% this week & around +14% year to date.
- In Europe, the pound sterling has stabilized after Bank of England’s interest rate decision/confusion yesterday. Earnings have come in better than expected, and stocks are inching higher in mid-day trading; The Stoxx Europe 600 sits at its highest levels in 2 years
- U.S. markets are modestly lower in early trading, following the release of CPI and retail sales data.
- Consumer Price Index (CPI) data released shows a 0.2% increase month over month and in line vs -0.3% last month. CPI will be an important determinant as to how aggressive the Fed may choose to be in June and later this year. Is a sustainable path of +2.0% inflation growth on track? Producer Price Index (PPI) came in a bit higher yesterday, often a good lead indicator for consumer prices down the road. June appears to be a lock, but they could take a break in the second half of the year to monitor impacts of domestic from prior hikes as well as global developments, including the value of the US dollar.
- Retail sales came in at +0.4% vs +0.6% consensus expectations; ex-autos and gas was also less than estimates. Are consumers abandoning classic retailers and increasing focus on online shopping? Also, pattern appears to be spending on experiences, like dining and entertainment, rather than goods purchases.
- Global monetary policy continues to diverge with the Federal Reserve (Fed) and China tighter, while the European Central Bank (ECB) and Bank of Japan (BOJ) remain accomodative. Things are relatively upbeat in Europe with Macron victory, UK and Germany elections pointing to stability, and Italy elections are not until next year. But, Canadian banks are weak, China PPI came in below forecasts and there remains some risk around upcoming Organization of the Petroleum Exporting Countries (OPEC) meeting in Austria on May 25. The reflation trade can only take global markets so far. This further suggests monetary needs to transition to fiscal stimulus, which is likely why Secretary of the Treasury Steve Mnuchin is previewing policy with G-7 representatives today, rather than waiting for official G-7 meeting later this month.
- Inflation remains contained. The Consumer Price Index rose 0.2% in April, in line with expectations, to put inflation at 2.2% year over year. Core inflation, which excludes the volatile food and energy categories, missed expectations, rising 0.1%. While a rate hike at the Fed’s June meeting remains likely, the inflation data will give the Fed more flexibility should economic data come in weaker than expected.
- Retail sales rebound. Retail sales rose 0.4% in April, missing consensus expectations of 0.6% growth, but the miss was offset by a 0.3% upward revision of March’s data to 0.1%. Core readings showed a similar pattern. The revised reading should provide a boost to the next revision of first quarter GDP. Measures of consumer confidence remain strong, but there is little evidence so far that higher confidence has impacted consumer spending patterns.
- German economic data was released and met expectations. GDP growth is running at 1.7% with inflation at 2%, right at the ECB’s target. Though this inflation figure is somewhat worrisome for German economic hawks, it is unlikely enough to impact the timing of any major policy announcement. We expect greater clarity on policy as early as June, but with no real changes until 2018. European stocks and the euro itself were generally modestly higher this morning.
- Chinese credit expanded more than expected according to government data. Although the government has been trying to de-lever the economy to avoid a credit bubble (or mitigate the damage of the bubble already in place) credit is still expanding at a pace probably faster than the government desires. Chinese stocks were up overnight in both Hong Kong and on the mainland exchanges.
- Excellent earnings season winding down. With 90% of S&P 500 companies having reported, S&P 500 earnings growth is tracking to a solid 14.7% year-over-year increase in the first quarter. That pace is well above the 10.2% consensus forecast as of April 1, on the back of a 75% beat rate and solid 7.3% revenue gain. Even excluding the sharp rebound in energy sector profits, earnings growth is tracking above 10%. The bigger than usual upside surprise, coupled with the smaller than average (~1.5%) reduction in forward estimates, have solidified this earnings season as one of the best since the financial crisis. We will review earnings season in Monday’s Weekly Market Commentary.
- Least volatile year ever? The S&P 500 traded in a daily range of 0.59% yesterday, ending a record streak of 14 days without a daily range of more than 0.50% (since 1970 using reliable intraday data). As a result of the surprising calm this year, the VIX has averaged only 11.9 so far in 2017 – the lowest level ever. Today on the LPL Research blog we will take a look at what this low volatility could mean.
- CPI (Apr)
- Retail Sales (Apr)
- Germany: GDP (Q1 Prelim.)
- Germany: CPI & PPI (Apr)
- Eurozone: Industrial Production (Mar)
Past performance is no guarantee of future results.
The economic forecasts set forth in the presentation may not develop as predicted.
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