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US data beats expectations but core reading suggest caution

The latest retail and inflation data from the US have come in above forecasts but the core readings should serve as a sign of caution. Retail sales m/m rose by 0.6% in December, above the 0.5% forecast and far above the prior reading of 0.1%. However one shouldn’t be to quick to draw from this a strengthening in consumer spending as the core reading of 0.2% came in inline with the previous reading and missed the 0.5% rise expected.

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The month of December is typically strong for retail sales and as you can see from the chart below a strong finish to 2016 meant it was the second best year in terms of increases in the last 5 with only 2012 surpassing it.

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 There is a fairly strong correlation between the retail sales figures and the conference board consumer confidence prints seen over the past five years and both these reading appear to be moving higher above the range of the previous two years. 

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 As well as retail sales data there was also figures from the producer price index (PPI) which also surpassed expectations to come in at 0.3% m/m. A small rise of only 0.1% was expected after 0.4% last time. A larger than expected increase here adds to recent rises and provides more evidence that the inflationary pressures in the US are on the rise. The consumer price index (CPI) data is out next Wednesday at 1:30 GMT and this has previously shown a close correlation to the PPI number.  

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 The early reaction to these releases 30 minutes later in the market has seen some gains made for the US dollar, with USDJPY rallying more than 70 pips whilst Gold has fallen lower and moved back below the $1200/oz level. 


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