by Adam Button
US and world indices started the week well off Friday's highs, following a strong US retail sales release, which highlighted the old saying “never underestimate the spending power of Americans.”
The report helped to restart the climb in yields and keep the downward pressure on the yen. But as of writing, EUR and JPY are the strongest and AUD and CAD the weakest. NZD/USD hit 0.7105 before coming off the Feb trendline resistance after a surprise inflation report showed the fastest price rise in a decade.
US retail sales rose 0.7% in September compared to a 0.2% decline expected. That compounded a 2.5% m/m rise in August. It was an impressive run of spending despite those being two months where COVID would have dissuaded some in person spending. Even stripping out food, energy, and building materials, sales rose 0.8% to beat the +0.4% consensus.
The initial market reaction was tepid and the dollar was caught in a downdraft into the London fix but in the bigger picture, it underscored the enormous amount of built-up savings during the pandemic and the likelihood of a spending boom—particularly if we've seen the final big wave of COVID.
Monday's New Zealand CPI report highlighted the risks around more spending, especially with supply chains so challenged. Q3 prices rose 2.2% q/q compared to 1.4% expected. The year-over-year rise was 4.9%, which was the highest in more than 10 years.
The kiwi rose 20 pips on the headline. That move was tempered by talk of a new COVID circuit breaker but the market would be wise to look beyond COVID as the vaccination rollout continues.
In other news:
