Back To Business As Usual, Mixing And Matching Causes And Effects

As the dust begins to settle on the Euro-Greek tragicomedy and on the first phase of an Iran nuclear-bomb-prevention deal, we are back to some extent to business as usual.

There are longer-term issues in the U.S. economy’s futures that we are all aware of by now. An interest-rate increase by the Fed, all but assured by December or early in 2016, always seems to get thrown off course by that pesky data.

Early in the day, the U.S. dollar posted moderate losses against the euro and yen because figures showed a surprise drop in U.S. retail sales in June, which dented optimism about American – and world – economic growth. The data absolutely muddied the waters on the coming rate hike’s timing.

Retail sales slipped 0.3 percent in June, the softest reading since February, as consumers cut back on purchases of automobiles and other goods, according to a Commerce Department report. Even excluding temporal purchases like automobiles, gasoline, building materials and food services, core retail sales dipped 0.1 percent following a 0.7 percent gain in May.

Reuters experts had forecast retail rising 0.2 percent. Core retail sales had been expected to jump by 0.4 percent.

Coming after a very squishy employment report for June and an alarming drop in small business confidence, the weak retail sales numbers imply that the U.S. economy has lost solid momentum at the end of Q2, after struggling earlier in 2015.

As the trading day wore on, however, the dollar picked up lost ground against the dollar and yen and is even on the session against the European common currency. Against the British pound, though, the dollar is down not quite 1% on news of plans in the UK to raise interest rates very soon.

U.S. and European equities indices are up modestly, indicating some strength in the world’s two largest economic units. Tokyo’s Nikkei was up nearly 1.5% while Shanghai fell a bit over 1%. People are wondering if this is a return to the bearish pattern on the Chinese mainland. Our response is that it is too early to tell. It certainly has an air of foreboding about it.

The S&P 500 Index is up today and it will soon begin flirting with its high for the year if the trend continues. The S&P is the index that most closely reflects the American economy’s macro performance. Thus far, the S&P’s rise is about in line with U.S. economic growth for the year

As we approach 4PM in New York, gold is down in regular trading although it did find some price support via the lower dollar. Overall gold is down in afternoon trading about 0.25%. Silver fared worse, traders pushing t down and away from any positive dollar strength affect the white metal might have found otherwise. It is down almost 0.75%.

Inexplicably, West Texas Crude rose in the face of the positive news on the Iran nukes deal.  Some traders fear that the deal might not be approved in the U.S. Congress. Others believe that Iranian oil that has been sidelined will not come back quickly.

Both groups keep forgetting that the world is producing anywhere between 2 and 2.5 million barrels per day above demand. Adding just a small amount from Iran – say 150,000 bpd – will have a definitive impact on world prices. WTI is up over 1% on the day, also profiting mildly from the softer dollar.

Wishing you as always, good trading,