American consumers are not in the mood to spend. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 63.2 in April from 69.5 in March, worse than the 69 reading expected.
Consumers haven’t been feeling this pessimistic since March 1982. Their sentiment for the next six months wasn’t that good either as that reading fell to 53.4, the lowest reading since November 1990, from 60.1 last month.
With jobs on the downward spiral, tightening credit, higher gasoline prices and declining values of their homes, Americans are feeling the need to tighten their belt, spending their hard-earned salary on bare necessities. That is good for discount stores like Walmart (WMT), but not good for Tiffany (TIF) or Gap (GPS).
But the thing is, if Americans don’t spend, they will affect the US economy even more, as consumer spending makes up two-thirds of the overall economy. Just on Wednesday, oil prices rose to a record high of $112.21 a barrel on supply concerns as people in the US are about to start their summer driving season. Today, oil is trading above $110 a barrel.
ECB Thinks Differently From IMF
The International Monetary Fund has been urging the ECB to cut the main interest rate, but that sentiment isn’t shared by ECB’s Axel Weber, who is also president of the Deutsche Bundesbank. He said ahead of the G7 meeting that “there is no leeway at all to discuss a rate cut” as the global economy is still in a robust state and the Eurozone and German economies are in a better shape than that of the US.
I’m glad the ECB is standing firm on its primary mandate of maintaining price stability - inflation is very high in the Euro area and if it’s not kept under control, it could lead to more dire consequences. Weber shares German Finance Minister Peer Steinbrueck’s view that the IMF’s growth outlook is too pessimistic. Steinbrueck said that G7 would discuss the weak US dollar behind closed doors.
Forex Trading
EUR/USD retreated from yesterday’s record high of 1.5920 and is trading in the 1.5800s on Friday. USD/CHF’s resistance lies around 1.0100-1.0130.
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