Daily Insights Report 17/02/17

• 31 Mar 2017

17 Feb 2017

Housing starts in the US unexpectedly fell 2.6% in January to 1,246,000 (annualized). In December, data showed it to be 1,279,000. Building permits showed to have risen by 4.6% and reach a year high of 1,285,000 (annualized). While this is a slight bump in the construction industry in the US, a look at the last five years shows that the market is healthy and growing at a reasonable pace. Factors including the weather and unions cause temporary declines, but the housing construction market remains healthy overall.

New Zealand retail sales grew only 0.8% in the quarter ending 2016. This has been the worst quarter for retail sales since Q2 in 2015. The main contributors were motor vehicles and motor parts. Supermarkets and grocery stores kept the data from growing, and were down 0.5%. Consumer confidence is likely to have improved since the rate cuts. Similarly, many individuals in a heating housing market may have more optimism because of the wealth effect. This is when spending habits change because an increased perception of wealth – in this case would be the value of real estate.

Commodities

– Gold declined 0.1% to reach $1,237.95 an ounce after rising for three consecutive days. The metal is now nearing a three month high, and has shown gains for seven out of the last eight weeks.

– Oil prices face confusion on what direction to move towards. This is because of rising crude stockpiles in the US. Ultimately, crude oil is heading for a decline this week after reaching $53.46 a barrel.

United States Dollar (USD)

Leading Economic Indicators Index (January)

The expectation for this data is 0.5%. This index is an aggregate of many components so gives a complete picture. However the data used for the calculation has already been released before, so it tends to have a relatively small impact (if any). The 0.5% growth is expected to show December’s strong gain in falling unemployment and the projection of an increase in building permits. Data showed that unemployment claims are at decade low levels, showing that firms are not willing to make their workers unemployment. It is likely that hiring will continue to grow nationwide and some sectors will benefit from wage increases.

Great British Pound (GBP)

Retail Sales (January)

Retail Sales in the UK likely continued decreased in January after a low result already in December. As a result, the yearly growth of sales likely fell down to 2.3% from 4.3%. Indicators from recent weeks, generally shared the same idea of a reduction in spending. A survey by popular a popular credit card in the UK (Barclaycard) showed a sharp decline in electronics and department stores in 2017. With the cost of food and energy going up, with wages remaining stagnant, retail sales definitely will suffer as the budget constraint has changed.

Retail sales are likely to weaken further as inflation edges upwards and wages do not match this growth. Eventually, budgets will be tightened, and households will be less willing to spend on retail goods since purchasing power has decreased.

Technical Analysis

GBPUSD

Looking at a yearly chart of this currency pair, the most notable change happened at the time of the referendum. However, since then, there have been other events including the US election.

Using MACD analysis, we see that the moving averages are going towards a convergence, which would imply that the current trend is nearly finished. As a result, one direction would favor the other. With the event of Brexit in the near future and data that was released this week showing a weaker British economy, these are factors that might allow the USD to appreciate against the Pound. If this case follows through, then the currency pair would head towards the 1.22 level.

The US economy has shown some political difficulty as controversies remain the headline in the media. When controversies increase, uncertainty rises as well, which would depreciate the Dollar and then the Pound would appreciate towards the 1.28 level.