Business Inventories Climb in May

Wells Fargo Research Team Wells Fargo

Businesses added inventory in May, with the largest increase coming from retailers. Even our modest $22 billion forecast for inventory build in Q2 would boost top-line real GDP growth by 0.5 percentage points.

Business Inventories Bounce Back

Business inventories rose 0.3 percent in May after a 0.2 percent decline in April.
The small increase in inventories in Q1 shaved 1.1 percentage points off of real GDP growth, making the weak first quarter for economic growth look softer than real final sales would suggest. We expect a faster pace of inventory build in Q2 to bolster the headline growth figure released later this month.

I-S Ratio Down, but Less So for Retailers

Amid stronger total sales growth and a slow pace of inventory growth, both the nominal and real inventory-to-sales (I-S) ratios have come down in recent months.
By sector, the inventory story is more divergent. Manufacturers and wholesalers have had more success bringing their I-S ratios down, while the ratio remains more elevated for retailers amid a challenging environment.

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Wells Fargo Research Team

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EUR/USD makes a U-turn, focus on 1.1900

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GBP/USD sticks to the bullish tone near 1.3660

GBP/USD maintains its solid performance on Wednesday, hovering around the 1.3660 zone as the Greenback surrenders its post-NFP bounce. Cable, in the meantime, should now shift its attention to key UK data due on Thursday, including preliminary GDP gauges.

Gold holds on to higher ground ahead of the next catalyst

Gold keeps the bid tone well in place on Wednesday, retargeting the $5,100 zone per troy ounce on the back of modest losses in the US Dollar and despite firm US Treasury yields across the curve. Moving forward, the yellow metal’s next test will come from the release of US CPI figures on Friday.