Markets traded lower this morning by as much as two percent following a weaker than expected 0.4% contraction in advanced retail sales along with further weakness in just released data on business inventories for March. Markets have rallied significantly off their lows and have started to pullback following the sharp movement seen in recent months. The S&P bolted off its Marchlow of 676.53 to more than a 36% gain at 929.23 last Wednesday. Since then, the index has closed lower for three consecutive days with downside continuing into today’s session. While investors remain upbeat on financials, a sharp first quarter slide in housing prices and weak data abroad has kept investors uneasy on the prospects for a quick turnaround in the global economy. Positive signs of rising growth in China may not be enough to stave off falling exports and weaker demand in advanced economies. Oil has pulled back below $60 per barrel after having rallied to the highest in more than six months while other commodities also reversed gains. On the currency front, USDCAD has begun to retrace higher following significant appreciation for the Canadian dollar in the past several weeks.
[B]Business Inventories[/B] for March came in at a smaller-than-expected contraction of one percent, the seventh consecutive decline since the figure began falling in September. Businesses have continued to cut back on inventory as demand declines and companies cut production amid weakness in the economy. Ongoing job cuts that have resulted in more than 5.7 million jobs lost since the start of the recession has perpetuated the problem as sales fell at a quicker pace than inventory in March. Sales cut back from $988B in February to $972B while inventories dropped from $1,418B to $1404B. Overall, the year-over-year data showed inventory contraction increased to 5.1% while sales narrowed but remained much higher at a 15.1% decline. The ratio of inventory to sales remained unchanged at 1.44 months supply, the lowest since December.
USDCAD has traded in a clear downward channel for the past several weeks and has recently begun to retrace following a fresh low set this week under 1.15. Our analysts at DailyFX are both in agreeance that upside is expected to continue as the pair retraces higher. The Canadian dollar may continue to weaken by at least 100pips with a move to 1.1860, the 38.2% fibonacci retracement, or higher possible. Further confirmation of this movement would be evident if the pair begins to trade above yesterday’s highs just below 1.17.