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.