RBC Capital Markets
The currency market’s price action over the past 24 hours speaks of the prevailing confusion. Fed speakers overnight again invoked the “transitory inflation” mantra, which has helped soothe the bond market.
The Fed announced a shift to its bond purchase schedule through June to focus more on Treasuries maturing in seven years or longer. Meanwhile, there were positive news headlines from President Biden’s meeting with a group of Republican senators, mentioning that further talks on the administration’s infrastructure spending plan will be held next week.
Day ahead: The main data releases are US retail sales (see USD), US industrial production, University of Michigan consumer survey, and Canada manufacturing sales (see CAD). The minutes from the ECB April policy meeting will also be published today.
USD: It may be hard to fathom that after a near-10% gain in retail sales last month that another relatively strong outcome awaits us today, but we can tell that it was hard to tamp down the positive outlook as we were putting together our estimate. We may not get another near double-digit gain in this report, but an extremely solid near-2% m/m advance in headline retail sales seems reasonable. As the re-opening continues we can see in the weekly credit card data that many of the sales sub-categories continue to push higher. This should make for strong growth in the retail control group (we have pencilled in +1.4%). Second quarter consumer spending appears to be starting out strong.
Asia has seen markets trade flat following a recovery in risk sentiment in Thursday’s NY session. There has been little in the way of new developments overnight in Asia, however with another round of top tier data in the US due today, sentiment is likely to remain cautious. More specifically, we await USD retail sales, IP and U. of Mich. Sentiment over the course of the day, which could all feed into yield sensitivity at the margin. Elsewhere in markets, we await EUR ECB minutes, and CAD housing and manufacturing sales data. In EM, we look to CZK CNB minutes, PLN and COP GDP, and ILS CPI.
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