Daily FX Update, 14 May 2015 OVERNIGHT MARKET UPDATE:

·         US April retail sales were disappointing. Both the headline and ‘control’ measures were unchanged and discretionary spending was weak. Putting the March and April reports together gives a better read. Owing to this year’s early Easter some consumption may have been transferred to March, which was revised up to +1.1% m/m (and the control reading to +0.5% m/m from +0.3% m/m). 

·         Q1 euro area GDP was in line with expectations, rising 0.4% q/q. Q1 Germany’s GDP fell short of expectations, rising 0.3% q/q. However, domestic demand growth seems to have been firm and the disappointment came from a strong surge in imports. 

·         The UK labour market report was strong. The unemployment rate fell to 5.5% in the three months to March versus 5.6% in February. Earnings growth (ex-bonuses) rose to 2.2% y/y from 1.9% y/y, and the economy created 202k jobs in Q1. 

·         The Bank of England’s Inflation Report was in line with expectations. Owing to the fiscal tightening announced in the March Budget, growth forecasts for this year and next were lowered from 2.9% to 2.5% and 2.6%, respectively.

·         In the currency market, AUD broke through USD0.80 as US retail sales data disappointed and propelled USD broadly lower. AUD and NZD led the charge higher despite weaker commodity prices and a tepid stock market response.     

·         The long end of US rates markets rallied early in the session before paring the move on the back of disappointing US April retail sales data. The fact that the long end failed to hold onto its gains is a real sign that this bearish phase for bonds is continuing, suggesting rallies are selling opportunities.        

·         In US equity markets, both S&P 500 and Dow Jones closed unchanged.                   

·         Crude oil prices fell, with WTI prices failing to hold at USD62/bbl for the second time in a week. Crude oil prices initially rallied after EIA data showed US oil inventories fell by 2.2m barrels last week.     

Gold prices rose to their highest level in five weeks, after disappointing US data sparked fears that the country’s economy has yet to recover from its swoon.