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Retail Sales Beat Expectations, Leave Currencies Unmoved

Matt Eidinger August 15, 2019

Retail sales highlight strong consumer spending in the US

Jobless claims reverse course slightly, but remain healthy

Markets remain focused on trade tensions and recession warning signs

US consumers continued to spend in July, bucking signs of a slowdown in other areas of the economy to keep retail sales receipts growing at a solid clip. Headline retail sales numbers from the Census Bureau beat market expectations in rising 0.7% last month, while the less-volatile ex. auto and gasoline measure rose a full percentage point.

Specifically, spending on electronics (+0.9%), department stores (+1.2%) apparel (+0.8%) rose notably and reversed course from sharp drops witnessed during June. On the other hand, there were notable declines in spending on sporting goods, hobby, musical instruments and book stores (-1.1%) as well as motor vehicles and parts (-0.6%).

Separately, the Department of Labor said seasonally-adjusted weekly jobless claims rose 9,000 to 220,000 during the week ending August 10 – slightly disappointing markets, which were looking for a reading closer to 212,000. The four-week moving average increased slightly to 213,750, while continuing claims rose modestly to 1,726,000 for the week ending August 3.

After these releases, the DXY Dollar Index was largely unchanged at just under 98 – but looks to be coming under upward pressure as markets respond to new developments in the war of words between the United States and China.

In a statement released this morning, China said that it “has no choice but to take necessary measures to retaliate” against President Trump’s latest round of tariff – suggesting that the administration’s move to delay some duties to December is unlikely to stabilize the situation.

Traders also remain deeply focused on developments in the US Treasury market. After flirting with one another for several months, 2-and-10-year government bond yields briefly cross-crossed and became inverted yesterday morning, suggesting that trade-related uncertainties are pushing the global economy into recession. Over the past five decades, this type of inversion has always been followed by an economic contraction within eighteen months.

Although the curve has now moved back into positive territory, the spread remains less than 2 basis points wide. In money markets, the chances of another 25-basis point interest rate cut at the September Federal Reserve meeting are sitting at just under 80%. According to data from the CME Group, financial markets are looking for two or three more interest rate cuts by the end of the year.

Bottom Line: In defiance of increased volatility seen in the financial markets, data emanating from the US economy continues to paint a relatively-positive picture. Employment conditions are tight, and consumer spending remains healthy – suggesting that recent turbulence in the bond markets may look like an overreaction in the near term (but perhaps not, in the longer term).

Matthew Eidinger
Fintech Specialist, Dealing Operations

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