The US stock futures are trading higher this morning as traders are expecting the Fed to remain relaxed about the rate hike for some time. Nonetheless, the US retail sales data released yesterday is not something which traders are going to forget that easy as it spells a lot of trouble for the US economy. The consumer spending was appalling and the downward revision for the last month was just the cherry on top- can it be any worse! That is what investors are thinking. This is clearly reflected in terms of the dollar weakness. The number in reality looks even more uglier and rotten if you take away the gas and auto spending. Today’s trading action is going to have the emboss stamp of this data.
In terms of economic data, we do not have much from Europe, but I’m the US, it will be once again another action packed day. We have the CPI and core CPI data hitting the wire at 13:30 BST. We do know that the PPI was well below the expectations and confirmed that the country is facing heavy tornado of deflationary pressure. So, we do believe that both the CPI and core CPI data may miss the forecast, especially the headline CPI number could bring more volatility in the market. If we do miss the CPI estimate, we expect the dollar to fall further given maintaining inflation is an important mandate for the Fed.
The spilt of opinion among the FOMC members may start to narrow after this week’s economic data. What we have now is the US retail, US NFP data below expectations and if the CPI and Philly Fed are going to show another feeble number- we can surely say goodbye to rate hike in 2015. But, if the November readings do show any sign of life, these expectations will reverses s faster than many will expect. The forecast for the September CPI headline number is -0.1%, which in other words mean that the economy will face deflation. As for the core CPI number the forecast is for 1.8%.
The Empire and Philadelphia manufacturing data could fade some of the sell off, which may take place due to deflation anxiety- earlier CPI data. The forecast for these two are -7.3 and -1.8 respectively. But the trading action could become a lot more uglier if we miss another miss on these two readings.