USDIndex , Daily
US Retail Sales revealed the expected September bounce after tiny revisions in still-weak July and August readings, though lean core retail sales slightly trimmed GDP prospects. The resumed oil price climb allowed a 2.4% surge in gas station sales, alongside a 1.1% auto bounce that chased a 4.4% September vehicle sales rise, and a 1.4% building material sales increase after declines in the prior two months that were trimmed with today’s report. Expectations are for a Q3 GDP growth clip of 2.5% with a 2.7% pace for real consumption, following Q2 growth of 1.4% for real GDP and 4.3% for real consumption. 2.5% GDP growth for Q4 is also in place but lower consumption growth to 1.7% from 1.9%. Assumption is a 0.6% September PCE rise in nominal terms with a 0.2% “real” rise, alongside a 0.3% PCE chain price rise that chases our 0.4% CPI estimate.
The 0.3% PPI headline rise with a 0.2% core price gain beat estimates thanks to a big 0.7% rise in goods prices with gains of 2.5% for energy and 0.5% for food, alongside a lean 0.1% service price increase. On the old SOP basis we saw a 0.8% headline PPI surge with a 0.4% SOP core price rise. We expect the same PPI gains in October of 0.3% overall and 0.2% for the core, as oil prices climb. Energy prices are rising again, as seen through Q2, after a mid-year pause. The surge in oil prices since February was initially accompanied by a drop in the dollar that exacerbated commodity price gains, though this has reversed course since the June Brexit vote. Prices face ongoing headwinds from global growth weakness and the tail-end of the inventory overhang, though we still have firmness in 2016 wage and “core” prices as the cycle ages. Expectations are for headline September gains of 0.4% for CPI and 0.3% for PCE chain prices, with core price increases of 0.2% for CPI and 0.1% for PCE chain prices.
The USDIndex continued is late September /early October rise and currently trades at 97.80 looking to yesterday’s high at 98.13 as a resistance level. Next up, Michigan Consumer Confidence figures and Mrs Yellen speaking in Boston.
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