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    US retail sales miss estimates sending dollar lower

    Retail sales in the United States remained near stagnant for the second straight month in September as consumers appear to be cautious about their spending plans despite lower gasoline prices. Total retail sales rose by just 0.1% month-on-month in September and were up 2.4% from a year ago. Consensus estimates were for retail sales to rise by 0.2% after not recording any growth in the previous month, revised figures showed today.

    When excluding motor vehicles and parts, retail sales fell by 0.3% over the month, highlighting the strong contribution of auto sales in the figure. Motor vehicles and parts was the biggest gainer in September with sales up 1.7% during the month. Clothing, sporting and furniture stores, as well as food services also performed well.

    The biggest drop came from gasoline stations as lower fuel prices meant that sales were down 3.2% month-on-month and 19.7% over the year. But sales in grocery stores, building materials and electronics stores were also weaker in September than in August.

    The disappointing data put into question the optimistic outlook for consumer spending in the US. Many economists had forecast that falling unemployment and lower fuel costs would boost the spending power of US households but one explanation for the muted spending growth may be that consumers are saving more. With consumption expenditure accounting for 70% of the US economy, the slowdown in spending could hurt third quarter GDP growth and lessen the likelihood of the Fed raising interest rates this year.

    Adding to the Fed’s woes today were weaker-than-expected producer prices. PPI was down 1.1% year-on-year in September, against forecasts of -0.8%. Excluding food and energy, PPI rose by 0.8% over the 12 months, below estimates of 1.2%. Wholesale prices have now been falling on an annual basis for the past eight months and have yet to show signs of picking up.

    The dollar fell sharply against major currencies after the weak data, remaining at 3½ week lows. The euro surged to 1.1447 dollars before dropping back to around 1.1412 dollars in late European session. The pound extended its gains after already being boosted by today’s UK jobs data. Cable rose to a 3-week high of 1.5425 before easing slightly to 1.5407. Against the yen, the greenback plunged to 119.24 but managed to quickly rebound to 119.48 yen.

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