US data allaying some bearishness on economy - ANZ

Analysts at ANZ explained that Just when questions were beginning to be asked about the strength of the US economy – and the consumer in particular – data on Friday helped to allay some of those fears.

Key Quotes:

"Softer GDP and manufacturing data had seen concerns increase about whether the US economy could justify further monetary policy tightening this year. For small central banks (including the RBNZ and RBA), that would be somewhat of a worse-case scenario given the likely weak USD keeping other currencies strong by default.

The disappointing performance from the consumer had been a big part of this recent economic softness, and the FOMC highlighted this paradox in its latest statement. However, retail sales figures for April showed decent spending growth in the month and positive revisions as well.

While we need to be cautious about making sweeping assessments from one data point, the better consumer sentiment data added to the tone. In fact, combined with the ongoing improvement in the labour market and firmer core inflation and inflation expectations, one could argue that the better retail sales figures give the Fed ample ammunition to hike as soon as June (although the softer China data over the weekend is admittedly not helpful).

The market doesn’t take this view of course, and these negligible expectations present a key challenge for the FOMC in tightening without significantly affecting market sentiment. There were already signs of this on Friday night, with stocks reacting negatively to this better data and the ‘good news is bad news’ behaviour seems to be back once again."