US Retail Sales Climbs 1.2% and ECB sees Aid Necessary for Irish Banks
Retail sales figures in the worlds largest economy rose 1.2% today after climbing 0.7% last month. Stock markets have surged on this good news up 0.45% on the close as investors gain confidence in the US markets. The rise in retail sales was led by car sales and non-store retailers, both indicate that consumer demand and economic growth prospects are improving. As a result, the USD has strengthened against the majority of its counterparts today.
Todays good news for the Dollar has however been hampered by the slump in the empire manufacturing report. This has now entered negative territory for the first time since July 2009. This sector has started to struggle as new orders and shipments have fallen at a rapid pace. This poses the opposite argument to retail sales, indicating that manufacturing, one of the key sectors for helping the USD out of recession, is now slowing.
The GBP/USD pair has been relatively flat in the absence of significant UK data, holding above 1.60 throughout the day. Direction will be dictated by the BoE minutes and UK retails sales data later in the week. Our bias is still long GBP/USD as long as the uptrend is capped by the 20 day moving average.
The ECB has put pressure on the Irish Government to take an aid package in order to prevent an escalation of their debt crisis currently threatening the Euro economy. Ireland has insisted that it does not need help, yet the facts and figures appear to dictate otherwise. ECB vice president Vitor Constancio has said that there is an emergency fund that could be used to support Eurozone governments helping to provide recapitalisation for banks struggling from the fallout of the property markets.
The EU rescue fund cannot be used as a direct loan yet can be used as capital. Ireland doesn’t have significant problems with liquidity yet suffers from problems related to capital adequacy and could benefit from the rescue fund for that purpose.
The Irish Bond market has rallied as investors bet that a rescue fund bail out package will happen as soon as this week. EU-Irish negotiations will take place in Brussels tomorrow and will intensify as member states push for a quick resolution.
Tomorrow sees a busy day for the economic calender with key inflation data being released for the UK. We also have more UK house price news. The GBP/EUR market looks set to march onwards to 1.20 yet this will be largely dependant on the talks in Brussels tomorrow.
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