US retail sales expected to boost Dollar strength

The Day So Far

Quiet trading seen across the markets this morning, a nice change from the flurry of activity seen in recent weeks, particularly in the bond space. Bunds briefly made new lows and it looked like a test of yesterday’s low was on the cards, with t notes also dropping to fresh 9 month lows. However, the moves lack conviction ahead of today’s critical US retail sales release. US equities are stuck in a very tight range, whereas European equities continued to march higher following yesterday’s strong gains.

This is despite the news that the late-night meeting between Greek premier Tsipras and German Chancellor Merkelended, rather predictably, without an agreement, although the talks were described as ‘constructive’ and ‘intense’. We now trudge wearily on to the next crisis meeting. The markets are still counting on a deal of some kind being completed before the end-June deadline and anything short of a concrete agreement before then should be treated with extreme suspicion.

The Afternoon View

Following yesterday’s bounce in equities, we are back in the bear camp, although much does depend on the release of US retail sales at 13:30 to set the sentiment for the day. Expectations are for a strongish headline number of 1.2%, the highest since March 2014. It would be the only the 2 but these expectations are heightened by the ongoing strength in the auto market, where the three month average is running at 10 year highs. Irrespective of the likely dominance of the autos component in the headline figure, we expect markets to react to that the most, rather than the ex-autos figure, and therefore we maintain our short bias for t notes and are looking for dollar strength . US equities are the trickiest to call, but we anticipate weakness this afternoon as the strong number re-ignites fears over an earlier rate hike.

Initial Jobless Claims are also due to be released at the same time, but the retail sales release will almost certainly take precedence; we know the labour market is in relatively good shape. Elsewhere, watch out for comments following the meeting at 13:00 BST between Tsipras and the EC’s Jean-Claude Juncker.