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FXLiveshow Commentary - Market News and Forecast

Chicago Fed index set to show firmer US growth in January
by Administrator, 23rd February 2017

Germany’s consumer sector is in focus today with the March forecast for the Gfk Consumer Climate Index. We’ll also see an update on sentiment in the UK retailing sector via the February release of the CBI Distributive Trades Index. Later, the Chicago Fed’s updates its measures of the broad trend for the US economy based on the bank’s National Activity Index.

Germany: Gfk Consumer Climate Index (0700 GMT) The broad trend for Europe’s biggest economy is expected to remain healthy in 2017, but if there’s a reason for caution you’ll find it in recent updates for consumer spending.

Retail sales in Germany slumped in December, declining for the second month in a row. Consumption fell 0.9%, a softer decline compared with November’s hefty 1.7% slide, but sales were down in three of the last four monthly reports.

The weakness is expected to continue in January, according to the German Retail PMI. The index slipped to 50.3 last month, just above the neutral mark that separates growth from contraction. “Germany’s retail sector was close to stagnation in January,” said the IHS Markit economist who oversees the survey.

The odds for a rebound also look subdued via expectations for today’s survey data from Gfk. The consultancy’s Consumer Climate Index (CCI) for Germany is projected to dip modestly for what’s billed as the estimate for March.

Econoday.com’s consensus forecast calls for CCI to edge down to 10.1 in today’s update from 10.2 in February. The prediction is still close to the best reading for the past year and so it’s still accurate to say that the mood is comparatively upbeat in Germany’s consumer sector.

In any case, analysts will use the Gfk data for deciding if the weak numbers for spending of late are set to roll on.

UK: CBI Distributive Trades Index (1100 GMT) Brexit blowback pinched retail spending in January. Is a repeat performance brewing for February? Today’s CBI data offers an early estimate.

In fact, the crowd’s looking for a modest rebound. The CBI Distributive Trades Index, which is considered a leading indicator for UK retail spending, is projected to rise to 5.0 in February from January's minus 8, according to TradingEconomics.com’s consensus forecast. But the rise will still leave the index well below the 35 reading for December.

The expected increase for the CBI benchmark implies that the hard data on retail spending will stabilise in January via the year-on-year comparison. That would be welcome news after three straight months of a softer annual rate of growth. But given the relatively modest rebound expected in today’s CBI data, it’s reasonable to assume that the trend in UK consumer spending will remain subdued in January's hard-data update that’s due next month.

The headwind that cut spending in January: higher prices, due in part to rising inflation unleashed by the slide in sterling following last June’s Brexit vote.

“The theme for most forecasters this year is that consumer spending is going to suffer as higher prices erode real incomes,” an economist at Scotiabank warned last week. The market will be keenly focused on today’s release for deciding if the caveat is still credible.

US: Chicago Fed National Activity Index (1330 GMT) US economic growth is on track for a moderate pickup in the first quarter, according to the implied growth forecast for GDP via the US Composite Output Index for February.

Markit’s survey data is currently expecting a 2.5% rise in Q1 output, moderately above the 1.9% increase in 2016’s Q4. “The survey’s employment index is meanwhile indicating that a respectable 165,000 jobs were added to the economy in February,” said Chris Williamson, chief business economist at HIS Markit.

Today’s January update of the Chicago Fed National Activity Index is also expected to offer an upbeat profile of the US macro trend. TradingEconomics.com’s consensus forecast for the index’s monthly reading calls for a rise to 0.10, which translates to an implied three-month average of minus 0.03 – the strongest reading in over a year. The near-zero print equates with economic growth that’s close to the historical trend rate.

Although the outlook for the economy remains encouraging, the Federal Reserve is still expected to keep interest rates on hold at next month’s policy meeting. Fed funds futures are pricing in a rate-hike probability of less than 20% for the mid-March announcement from the central bank, based on CME data for mid-day trading on February 22.

But some policymakers are laying the groundwork for squeezing monetary policy. Earlier this week Cleveland Fed President Loretta Mester said she would be “comfortable” with a rate hike if economic activity remains on a “sound footing.” In fact, that's the message expected in today’s update from the Chicago Fed.


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