Downloading QE3

US May retail sales fell 0.2%, posting their first back-to-back monthly decline since May-June 2010, a period coinciding with surging euro fears, which led to a temporary low in the single currency until markets rebounded on anticipation of QE2 by the Fed, which materialized in Nov of that year.

The 1.0% decline in May PPI was the biggest since July 2009, owing to falling energy prices, hence, the 2nd straight monthly reading of +0.2% following +0.3% in March.

With receding inflation and renewed weakness in employment growth, the FOMC should reiterate its readiness to deliver further easing measures, rather than begin a new set of Operation Twist at next week’s FOMC meeting. Payrolls have seen 4 consecutive monthly declines in the rate of job creation, totaling 195K. The last time NFP slowed for four consecutive months was in 2008. Although manufacturing jobs continues to save the day, the forward-looking surveys from Chicago PMI and Philly Fed give reason for worry.

On the consumer side, retail trade employment has increased by only 2K, and continues to slow from the accelerating pace of the last 2 years. This raises questions about the sustainability of the US consumer, which continues to carry the US economy –alongside manufacturing.

Gold looking for its first positive month since January after posting the longest losing streak (four-months) since 1999. Expectations of further Fed stimulus shall maintain support above the 1530s (100-WMA), but the fact that the Fed is obligated to continue selling bonds at the short-end, the offsetting nature of Operation Twist is likely to temper gains near $1700.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.