• The December decline was the first in five months and was weaker than market expectations for a flat reading.
• Lower nominal sales were despite a large increase in gasoline prices. Volume sales declined a larger 1.0% in December to partly retrace gains over the prior five months.

Sales at automobile dealers declined 2.5% in December, largely in line with an earlier-reported drop in unit vehicle sales in the month following an outsized sales pace in November (sales of motor vehicle and parts were still up 3.9% from a year ago in December). Less-expected was the extent of broadly-based weakness elsewhere. Sales at gasoline stations were the main exception; however, the 6.6% rise in spending at the pump looks to have been largely attributable to an increase in prices. Excluding the motor vehicle and gasoline station components, sales declined 1.4%, marking the third decline for that component in the last four months.

Our Take:

The pull-back in retail sales volumes in December was broadly expected given an earlier-reported drop in unit vehicle sales from record high levels in November and only partially retraced the cumulative 2.3% gain over the prior five months. Sale volumes still rose an annualized 4.5% in Q4 as a whole (and were up 3.0% on a year-over-year basis in December) which is broadly consistent with our call that overall consumer spending (including services spending not captured in the retail report) rose at a 2 1/2% rate in the quarter. In terms of overall GDP implications, the monthly pull-back in December retail volumes follows earlier reported gains in wholesale (+0.9%) and manufacturing (+2.3%) sale volumes in the month. Along with increasing indications that activity in the oil & gas sector is bottoming out (oil & gas drilling rig counts were above year-ago levels in December for the first time since December 2014), data to-date remain in line with our monitoring for a 0.2% gain in GDP in December that would build on the 0.4% rise in November and further recover from the disappointing, and surprising, 0.2% pullback in October. That remains consistent with our call for a 1.8% GDP gain in Q4 as a whole.

Wall Street is on course for a relatively flat open on Wednesday as traders look ahead to the release of the FOMC minutes from the last meeting for hints on the timing of the next rate hike.

Prior to Janet Yellen's testimony before Congress last week, investors had all but written off the possibility that we'll see a rate hike in March but the repeated insistence from the Chair and numerous other officials since that a hike is on the table, appears to have had the desired impact. That said, the odds of a rate hike are still well below the level that many see as being necessary for the Fed to actually trigger such a move - generally seen as above 70% - so there's still plenty of work to be done if the markets are going to fully buy in.

Given that the meeting was accompanied by a press conference and the number of Fed officials we've heard from since, the minutes may very well offer very little that we're not already aware of. If a hike in March is in fact is a strong possibility then we'll want to see a strong consensus indicating so in the minutes, otherwise there may be very little that they can actually add. It may therefore be Jerome Powell - a permanent voter on the FOMC - who has a greater influence on expectations when he speaks today. Should he add his name to the list of voters seriously considering a hike in March then markets should adjust accordingly, which could be bullish for the dollar - already up for a fourth consecutive day - and bearish for Gold.

Gold is trading marginally higher today but continues to show significant resilience in the face of dollar gains. Ordinarily, Gold has a relatively strong inverse relationship with the dollar and yet it's trading near more than three month highs and has not been wounded by the dollar's rally in recent days. Instead it appears to have stabilised just shy of $1,250 which is the next big barrier to the upside.

Oil is trading slightly lower on the day having threatened to break above the trading range it has been contained within for most of the year so far. Both Brent and WTI had looked on course to break through the upper end of the range at times and the latter did briefly trade at six week highs but the resistance proved too strong on this occasion.

Given that these levels are being tested even as we're seeing rising US production and oil rigs, not to mention some substantial inventory gains, suggests to me it may have legs and $59 Brent and $57 WTI may not be too far away. Clearly traders are impressed with the level of compliance in the production cuts and see this as far exceeding what's happening in the US and inventory builds as being only temporary.

USD/CAD has posted slight gains in the Wednesday session. Early in North American trade, the pair is trading slightly below the 1.32 line. On the release front, Canadian retail sales reports were softer than expected. The US will release Existing Home Sales and the Federal Reserve will publish the minutes of the January policy meeting. On Thursday, the US releases unemployment claims, with an estimate of 242 thousand.

Canadian consumers are in a surly mood and cut back in spending in December, to the surprise of the markets. Core Retail Sales declined 0.3%, compared to a forecast of +0.8%, while Retail Sales dropped 0.5%, missing the forecast of +0.1%. The week wraps up with Canadian CPI, which has posted two straight declines, as inflation levels remain weak. However, the markets are expecting a 0.3% gain in the January report. The weak numbers have further weakened the Canadian dollar, which is trading at 2-weeks lows against its US counterpart.

The Federal Reserve is back in the spotlight on Wednesday. The central bank finally pressed the rate trigger in December, a full year after the previous rate hike. Last week, Fed Chair Janet Yellen strongly hinted that that another hike is on the way, leaving the markets to speculate on the timing of a hike – will it be in March or June? Even though the US economy is solid and we could see several rate hikes in 2017, market uneasiness over the Trump administration continues to grow, dampening investor appetite for risk. Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump is yet to outline a clear and coherent economic policy, although he has promised to unveil a tax package in the next few weeks. After Trump's shock win in November, post-election euphoria boosted the markets. However, Trump's first month in office has been marked by controversy and confusion, which has unsettled the markets.

Dollar strengthens against European majors and Canadian Dollar today. But the greenback weakens against commodity currencies and Yen. Focus is turning to FOMC minutes. The minutes could reveal that FOMC members are more comfortable on the path of growth and inflation. But there's probably nothing new other than that. In particular, some FOMC members have openly noted that fiscal policies, due to the lack of details, were not taken into account in their decisions and projections. We'd view the March FOMC meeting, with new economic projections, as a much more important one. Released in US session, Canada retail sales dropped -0.5% mom in December. Ex-auto sales dropped -0.3% mom.

German business sentiment brightened

German Ifo business climate rose to 111.0 in February, up from 109.8, above expectation of 109.6. Expectation gauge rose to 104.0, up from 103.2, above expectation of 103.0. Current assessment gauge rose to 118.4, up from 116.9, above expectation of 116.7. The headline number matched a four-year yield. Ifo president Clemens Fuest noted in the statement that "manufacturers were far more satisfied with their current business situation." And, "after deteriorating in January, the business outlook also brightened slightly. Current demand and the number of incoming orders picked up markedly. This positive development was mainly driven by food producers, as well as mechanical and electrical engineering firms." Eurozone CPI was finalized at 1.8% yoy in January. Core CPI was finalized at 0.9% yoy. From Swiss, ZEW expectations rose to 19.4 in February.

UK Q4 GDP revised higher

UK Q4 GDP growth was revised up to 0.7% qoq, up from 0.6% qoq. Total business investments, however, dropped -1.0% qoq versus expectation of 0.0% qoq. Index of services rose 0.8% 3mo3m in December. Investors appeared to take BoE Governor Mark Carney's parliamentary testimony yesterday positively. Carney noted that there were a range of paths for the economy over the next few years. According to him, "there are scenarios where rates could rise at a faster rate than the market curve, and there are ones where they'd rise more slowly… We didn't come to an explicit view as a committee on explicit guidance that we wanted to give, so I'm not going to invent one now". BOE in its February inflation report revised higher the growth forecast to 2% in 2017, from 1.4% previously.

Released earlier today, Australia Westpac leading index rose 0.0% mom in January. Wage cost index rose 0.5% qoq in Q4 while construction work done dropped -0.2%.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0502; (P) 1.0558 (R1) 1.0591; More.....

Break of 1.0520 support confirms resumption of fall from 1.0828. Intraday bias is back on the downside for 1.0339 low. As noted before, corrective rise from 1.0339 has completed at 1.0828 already. Fall from there is likely resuming larger down trend. Break of 1.0339 low will confirm our bearish view and target parity. On the downside, break of 1.0678 is needed to confirm completion of fall from 1.0828. Otherwise, outlook will remain mildly bearish in case of recovery.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Economic Indicators Update

Daily Pivots: (S1) 1.0502; (P) 1.0558 (R1) 1.0591; More.....

Break of 1.0520 support confirms resumption of fall from 1.0828. Intraday bias is back on the downside for 1.0339 low. As noted before, corrective rise from 1.0339 has completed at 1.0828 already. Fall from there is likely resuming larger down trend. Break of 1.0339 low will confirm our bearish view and target parity. On the downside, break of 1.0678 is needed to confirm completion of fall from 1.0828. Otherwise, outlook will remain mildly bearish in case of recovery.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Daily Pivots: (S1) 1.2422; (P) 1.2451; (R1) 1.2502; More...

Intraday bias in GBP/USD remains neutral for the moment as it's staying in range of 1.2346/2705. Price actions from 1.1946 are viewed as a consolidation pattern, with rise from 1.1986 as the third leg. In case of another rise, we'd expect upside to be limited by 1.2774 to bring larger down trend resumption. On the downside, below 1.2346 will revive the case that such consolidation is completed at 1.2705 already. In that case, intraday bias will turn back to the downside for retesting 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Daily Pivots: (S1) 1.0044; (P) 1.0075; (R1) 1.0127; More.....

The break of 1.0118 suggests that rebound from 0.9860 has resumed. Intraday bias in USD/CHF is turned back to the upside. As noted before, fall from 1.0342 could have finished at 0.9860 already. Current rise would now target a test on 1.0342. Based on neutral medium term outlook, we'd be cautious on topping at around 1.0342. On the downside, break of 0.9966 support is needed to confirm completion of the rebound. Otherwise, further rally will remain mildly in favor in case of retreat.

In the bigger picture, prior rejection from 1.0327 resistance argues that USD/CHF is staying in a medium term sideway pattern. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone. Meanwhile firm break of 1.0342 will target 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

Daily Pivots: (S1) 113.23; (P) 113.50; (R1) 113.94; More...

USD/JPY dips mildly today but stays in range of 111.58/114.94. Intraday bias stays neutral first and outlook is unchanged. Corrective fall from 118.65 could extend lower through 111.58. But we'd still expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. On the upside, above 114.94 resistance should confirm completion of pull back from 118.65. In such case, intraday bias will be turned back to the upside for retesting 118.65.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

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The renewed optimism over global economic growth has rekindled investors' risk sentiment, resulting in global equities lurching to all-time highs this week. Asian markets were firmly bullish during trading on Wednesday with the risk-on trading mood encouraging participants to propel European markets to uncharted territories. Wall Street may be set to benefit further from the heightened speculations of tax cuts and deregulations boosting US economic growth. Although the current stock market rally is somewhat justifiable, the rising political risks across the globe and ongoing uncertainty could serve as ominous warnings questioning the sustainability of the rally. Stock markets could come under renewed selling pressure if anxiety from the developments in Europe and disappointments from Trump's pending economic policies sparks a fresh wave of risk aversion.

Sterling pressured by bears

Sterling found itself exposed to steep losses on Wednesday following the mixed economic data from the UK which revived some Brexit anxieties. Although Britain's economic growth accelerated faster than previously assumed in the final quarter of 2016 at 0.7%, the noticeable decline in business investment in the same quarter has already triggered concerns of how the rising uncertainty will impact investment this year. Sterling remains heavily influenced by the Brexit developments with further weakness expected as uncertainty haunts investor attraction towards the currency. The Sterling/Dollar remains heavily pressured on the daily charts and a breakdown below 1.2400 could encourage a further decline towards 1.2300.

FOMC meeting minutes in focus

The improving sentiment towards the U.S economy, prospects of higher US rates and the relentless "Trump effect" have made the Dollar king again. Today's main focus will be the FOMC meeting minutes this evening which has the ability to fuel the current bull rally or potentially limit gains. If the FOMC minutes are in harmony with the recent hawkish comments from Fed official, then the Greenback may be installed with further inspiration to trade towards 102.00.

Commodity spotlight - Gold

Gold was sold-off incessantly on Tuesday with prices tumbling towards $1226 as the speculations of a US interest rate hike in March and renewed appetite for riskier assets dented attraction towards the metal. Despite the sharp decline, the yellow metal has staged a sharp rebound on the back of rising political risk and ongoing uncertainty across the board. The visible fact that Gold continues to display resilience despite Dollars resurgence continues to highlight how risk aversion in the background continues to keep the metal buoyed. From a technical standpoint, Gold remains bullish on the daily charts and a breakout above $1240 could encourage a further incline higher towards $1250.

Wednesday February 22: Five things the markets are talking about

With all the 'hawkish' rhetoric of late by FOMC members the general concern is that the Fed is caught behind the curve and that catching up likely won't be friendly to the market.

Currently, U.S bond market yields are showing a little bit of 'scepticism' on the growth and inflation story fuelled by high expectation over Trump's fiscal policy - both the Dow and S&P 500 continue their record-setting rises, but the 10-year Treasury yield is straddling atop of the +2.3%-2.6% range.

With much of the market trying to position for higher yields, any evidence of disappointment from Trumponomics could generate a massive paring back of the current short U.S debt positions and drag yields even lower.

Later today, the Fed releases the minutes from its most recent meeting (02:00pm EST), possibly giving investors a look into how members see Trump's policies.

Note: Fed's Harker (hawk, voter) reiterated view that 'three' rate hikes would be appropriate this year and would not take a March rate move off the table. The Fed's Mester (hawkish, non-voter) is also comfortable with interest rates going higher.

Other U.S data this morning should show the domestic housing market (10:00am EST) picking up in Q1.

1. Global equities again hit record levels

U.S. stocks hit record intraday highs yesterday as strong earnings from top retailers underscored the strength of the U.S. economy.

In Japan, the Nikkei (-0.1%) share average was little changed overnight, unable to extend a two-day winning run as the yen's retreat outright (¥113.04) capped the broader market. The broader Topix rallied +0.1%.

In Hong Kong, stocks are trading atop their 18-month highs, led by resource and property stocks, as sentiment was lifted by the city's firmer economic growth outlook and stronger China inflows. The Hang Seng index ended up +1.0%, the highest since Aug. 2015.

In China, its main share indexes rallied for a third consecutive day to approach their three-month highs. The blue-chip CSI300 index rose +0.2%, while the Shanghai Composite Index also added +0.2%.

In Europe, equity indices are trading generally positive, but mixed after German IFO came in better than consensus. Pharmaceuticals are the notable laggard in the Eurostoxx while financials are leading the gains in the FTSE 100. Commodity and mining stocks are trading sharply lower in the index.

U.S stocks are set to open little changed (+0.0%).

Indices: Stoxx50 +0.1% at 3,341, FTSE +0.3% at 7,295, DAX +0.2% at 11,992, CAC-40 +0.4% at 4,907, IBEX-35 -0.1% at 9,550, FTSE MIB -0.4% at 18,962, SMI -0.1% at 8,560, S&P 500 Futures flat

2. Oil prices under pressure, gold range bound

Global oil prices slipped overnight as the "mighty" dollar found support. Nevertheless, crude prices remain broadly confined atop of their multi-week highs after OPEC again signaled yesterday their optimism over its deal with other producers to curb output.

Brent crude is down -44c, or -0.8% at +$56.83, having touched its highest since Feb. 2 at +$56.20 yesterday. U.S light crude (WTI) is down -34c or -0.6% at +$53.99 a barrel.

Note: OPEC confirmed yesterday that January data showed conformity from member countries in the output cut at above +90%.

Also adding to the bullish sentiment, hedge funds have raised their combined net "long" position in the three main derivative contracts linked to Brent and WTI by +51m barrels last week.

Both gold and silver broke recent lows overnight, triggering some stop loss selling action as the 'big' dollar strengthened broadly ahead of this afternoons FOMC minutes. However, both precious metals have rebounded strongly ahead of the U.S open to finish roughly unchanged at +$1,236 and +$17.95 an ounce respectively.

3. Sovereign yields out of sync on geo-political concerns

A muddy outlook on French election continues to drive investors to cut exposure to French government debt and embrace German bunds and U.S Treasuries.

The latest polls show right-wing presidential candidate Le Pen extending her lead in the first-round of voting.

Note: The odds of winning the second round are less likely, but any news that clouds the election outlook will lead investors to cut exposure.

Earlier this morning, Germany's two-year Schatz yield fell to a new record low of -0.91% as investors' run for safety continues. The 10-year Bund yield is trading at +0.27%, down from +0.31% yesterday. The drop in short-end German bund yields is weighing on the EUR, pushing it to multi-week lows against the dollar (€1.0502) and the yen (€118.69).

Elsewhere, it's the third time in less than six months that Australia has set a new borrowing record by issuing a +AUD$11B of 11-year debt notes in its biggest-ever bond transaction.

Note: Investors remain hungry for higher yields, despite concerns over Aussie budget deficits.

4. Dollar produces mixed results ahead of Fed Minutes

The 'mighty' dollar trades mixed against G7 currencies with rate differentials remaining the primary price driver. Both investors and dealers wait for the Fed's February minutes for more insight on looming rate hikes.

The EUR (€1.0506) has again failed to respond to better Euro data for the second consecutive session - German Feb IFO Survey and Eurozone CPI beat expectations. In the U.K, the pound trades under pressure (£1.2440) as mixed Q4 GDP data (see below) weighs on the currency. Sterling rallied initially as figures showed U.K. Q4 GDP was revised up to +0.7% q/q from +0.6%, but then fell as traders reacted to a -1% fall in business investment during the quarter, a possible sign that firms may be growing more cautious due to Brexit uncertainty.

USD/JPY (¥113.05) is softer in the wake of the BoJ's Governor Kuroda's comments overnight that oil prices had likely stopped weighing on CPI which dealers took as a potentially diminishing the need for bolder easing from the central bank.

5. UK Q4 growth revised up

The U.K. economy finished 2016 on a stronger footing than previously thought, with buoyant consumer spending and exports offsetting a slide in business investment.

Data this morning showed that growth on the quarter was revised up, to +0.7%, an annualized rate of +2.9%. However, growth over the year as a whole, though, was trimmed to +1.8% from +2%, reflecting a weaker performance in Q1 than previously calculated.

Note: The consensus expects the U.K. to slow this year as quickening inflation squeezes consumer spending.

Other data this morning reveals that the German economy may be back on track with the German Feb IFO Survey beating expectations as the Business Climate matches its high from Feb 2014 (111.0).

Also, the Eurozone January Final CPI reading confirmed that the annual pace hits its highest level since Feb 2013 with the core again hitting the upper range - +0.9%.