If people are out shopping, then things are looking up
One month's figures don't guarantee a summer of spending but US retail sales rebounded strongly in May. So why does this matter? Retail sales figures are a key barometer of consumer spending, which accounts for two-thirds of economic output in the US.
Share valuations in some sectors of the US market were becoming demanding and could only be justified if, in the real world, the outlook for corporate earnings was strong.
As this year began, personal spending was a lot lower than expected, especially when compared to real income growth and household wealth gains. The rebound in retail sales is a positive sign.
This is in addition to other positive data from the US including a decline in claims data, stronger housing activity and rebounding exports.
Normally a rebound in growth is good for US stocks and could still be, but markets will be keeping an eye on the Fed and decisions on interest rates and quantitative easing.
Some stock markets have been in limbo but the outlook is positive with equities seeming more attractive when compared to bonds. The main risk to stock markets is financial instability in credit and/or emerging markets when the Fed starts to raise rates. Let's not forget about the impact of thin trading volumes typical over the summer holidays.
The US stock market is challenged by more stretched valuations compared to European stocks. Hence the preference for some to increase their relative exposure to Europe.
Expectations of a second quarter rebound in GDP growth in the UK depend on whether private consumption picks up, after it slowed in the first quarter. In spite of volatile monthly figures, on a quarterly basis there should be evidence of a pickup in consumption. This is supported by high consumer confidence, higher employment and positive real wage growth for the first time since 2009.
In the UK this week, watch out for the Bank of England MPC minutes, data on wage growth and the unemployment rate.