Daily Commentary BY THE CURVE TEAM –

Dichotomy Between Business and the Consumer Continues

15th of March, 2018

March’s consumer sentiment survey confirmed the ongoing dichotomy between how consumers are feeling compared to how good the conditions are that businesses are enjoying. Meanwhile trade wars are a growing reality with India in the firing line as consumers look stretched in the US.

Consumer sentiment edged up a little last month but with the index hovering just above the key 100 level, consumers are hardly in an ebullient mood. After dropping sharply in the wake of the surge in market volatility, consumers’ perception of their own finances improved a touch. This was offset largely by growing pessimism in the outlook for the economy.

Of most interest was the unemployment expectations index, which lifted a little meaning that consumers are less confident around job security than a month ago. That comes as a stark contrast to the leap in the employment index from the business survey, which points to a jobs boom ahead. It will be very interesting to see how this dichotomy is reconciled over the months ahead.

Consumer concerns over the economic outlook could be driven by the threat of trade wars, which seems to be growing by the day. The US has announced it has launched a challenge of Indian export subsides with the World Trade Organisation. It comes as Donald Trump announced former Fed economist and CNBC presenter, Larry Kudlow, as his replacement for the Gary Cohen who recently left the US Administration.

Despite the turnstile still spinning at the White House, the data was pretty significant overnight. Retail sales missed yet again with the headline index falling 0.1% for the third consecutive month. Also out was the latest producer prices report, which confirmed that price pressures are starting to build as they came in a little ahead of expectations.

Finally we saw more dovish comments from the ECB president, Mario Draghi, who said that the ECB will remain “patient, persistent and prudent”. His new mantra followed comments that indicated while the time for QE may have past, rates are unlikely to rise well beyond the end of the central bank’s bond buying program.

David Flanagan

Director - Interest Rate Markets