December’s retail sales gave a stark reminder that the economy is not rosy anymore. They contracted 1.2% monthly in December versus +0.1% expected, and November’s figures were downwardly revised. This is the largest contraction since September 2009. Similarly, the gauge that excludes automobiles and gasoline slumped 1.4% monthly compared to forecasts of +0.4% and +0.5% in November. Why? First, the US federal government shutdown that started on 22 December sparked cautiousness among consumers and deprived civil servants of an income. Second, the December market sell-off was violent enough to remind both investors and consumers that a recession is still a possibility. There is a good chance that consumers increased saving at the expense of spending.
In the FX market, poor US data triggered some volatile moves but failed to set a clear trend. Safe-haven assets such as the Japanese yen benefited from the surprise. USD/JPY fell more than 0.75% to reach 110.35. Gold is also better bid as the price of an ounce rose to $1,315 this morning from $1,302 yesterday.
By Arnaud Masset
