Asian FX Week Ahead

Asian FX Week Ahead

Asian FX Week Ahead

U.S. retail sales fell for a second straight month in March and consumer prices dropped for the first time in just over a year, underscoring the magnitude of the loss of economic growth momentum in the first quarter.

But with the labor market near full employment, Friday’s weak reports failed to change views that the Federal Reserve will raise interest rates again in June. Economists expect a rebound in both retail sales and monthly inflation.

The Commerce Department said retail sales dropped 0.2 percent last month after a 0.3 percent decrease in February, which was the first and biggest decline in nearly a year. Compared to March last year retail sales increased 5.2 percent.

Economists had forecast retail sales slipping 0.1 percent. Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 0.5 percent last month after falling 0.2 percent in February.

In a separate report, the Labor Department said its Consumer Price Index dropped 0.3 percent in March, the first decline in 13 months and biggest decrease since January 2015 amid falling prices for gasoline and mobile phone services, which offset rising rents and food costs.

The CPI nudged up 0.1 percent in February. In the 12 months through March, the CPI rose 2.4 percent, slowing from February’s 2.7 percent increase.

The so-called core CPI, which strips out food and energy costs, fell 0.1 percent, the first and biggest drop since January 2010, after rising 0.2 percent in February. The year-on-year increase in the core CPI slowed to 2.0 percent, the smallest advance since November 2015, from 2.2 percent in February.

Playing Politics

New language in the US Treasury report is the “Pot Calling the Kettle Black” citing a history of currency intervention in China, South Korea and Taiwan is in line with what Americans say could be eventual changes to the criteria aimed at deterring future manipulation, but the USA continues to manipulate the Dollar as they see fit.

With Washington pushing a protectionist agenda aimed at reducing deficits, experts say the most logical option is to lengthen the time period for reviewing currency market interventions from 12 months to several years.

CHINA BLAMING

The report showed the high priority the administration puts on addressing trade imbalances and said it would be “scrutinizing China’s trade and currency practices very closely”.

The report came after China data showed its surplus with the United States was nearly unchanged in the first quarter compared to a year earlier at $49.6 billion, and cited China’s market protection as an impediment to a balanced trade relationship.

While Trump and Chinese President Xi Jinping last week agreed to 100-day trade talks, U.S. business leaders in China have expressed concern about a lack of progress in gaining further access to the Chinese market despite years of negotiations.

JAPAN

The Treasury report’s language on Japan was similar to past reports, and focused on the need for structural reforms to improve domestic demand, analysts said.

“The basic message is that Japan needs to expand its domestic demand and one can read this as them telling Japan to import more American goods,” said Minami of the Norinchukin Research Institute.

U.S. Vice President Mike Pence will visit Japan next week for a bilateral economic dialogue, with U.S. officials signaling they would press Japan to remove non-tarrif trade barriers and buy more U.S. products.

“The report won’t have an impact on the upcoming Japan-U.S. economic dialogue next week. But the U.S. administration’s focus on the trade deficit is something to keep an eye on,” said Nobuyasu Atago, chief economist at Okasan Securities in Tokyo.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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