Weather Again Blamed For US Softening

This week, Ms. Yellen came spoke and did not disappoint anyone – handover from one Fed head to another completed. For the time being the US Fed game plan is to follow the "Bernanke way. However, some recent disappointing reports have a few analysts rethinking the depth of their bullishness for the US economy. On Thursday, US January retail sales slipped lower (-0.4%), m/m; well below expectations and adding insult was the December result being also revised into negative territory.

The headline print was the steepest one-month decline in 18-months for sales. Ex-autos, January sales were flat, while core-sales (ex-autos, gas and building materials) came in down -0.3%, having been expected up +0.2%. The reason for the slip: icy weather. The biggest burden on the report was sagging auto sales, which was abundantly clear in US January sales numbers out of the major auto manufacturers last week. Add the weather-impacted report to the miss in the January PMI manufacturing and the monthly job numbers, is reason enough to consider revising US growth rates. Many analysts are beginning to cut US Q4 and Q1 growth forecasts given the recent multitude of disappointing data – Q1 is tracking at +0.9% vs. +1.9% while Q4 is pared to +2.5% from +2.8%.

The US economy is the "beacon for capital markets." However, the present global economic recovery has currently six "unusual" characteristics, which distinguishes it from recoveries of the past and is altering the strength of "the" recovery. This will obviously have a knock on effect on financial markets and monetary policies – indictors that need to be taken into consideration when looking at the "big" picture.

• Global trade continues to lag

• Credit is not picking up and continues to languish

•  Long-term interest rates are not rallying – a flatter US yield curve

• Inflation is benign or continues to fall – Euro-zone is concerned about deflation

• Commodity prices remain on the "back-foot"

• Finally, when considering US employment, notice the participation rate – it continues to decline – not a good sign

One needs to be looking beyond weather to grasp a clearer picture. The lack of volatility in forex can be blamed on G10 monetary policy – with the lack of deviation in interest rates, central bank rhetoric is doing most of the currency price guidance for now.