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Market Wire:
Retail Sales Rebound, Reducing Odds on Imminent Interest Rate Cuts

Karl Schamotta June 14, 2019

The Toronto Raptors have won Canada’s first-ever NBA Championship, beating the Golden State Warriors in a tense 114-to-110 game. The Canadian dollar is largely unmoved.

And in other news, U.S. retail sales rose 0.5 percent last month and the March and April numbers were revised sharply upward – suggesting that consumers remain largely unaffected by the storm of negative news surrounding the economy. Markets had expected a 0.6-percent increase, with no material revisions to the prior data.

Nearly all reporting categories gained, and the crucial auto sales segment rose 0.7 percent. So-called “control group” sales – excluding gas and vehicles – also rose 0.5 percent. Overall sales rose 3.2 percent from May 2018.

April sales were revised up to a 0.3 percent gain – up from the initially-reported 0.2 percent fall.

The print should lower odds on a rate reduction at next week’s Federal Reserve meeting, showing that consumers remain relatively confident about the future – and correspondingly, likely to prolong the economy’s expansion through continued spending.

The dollar is up modestly against its major counterparts, with yields popping higher as expectations shift. Prior to the release, market-implied probabilities on a 25-basis point June cut were currently near the 30-percent mark, and odds on three by the end of the year were nearing 60 percent.

Oil prices are giving back yesterday’s gains, and are down roughly 4 percent for the week, with fears of a trade war-motivated demand crunch outweighing tensions in the Strait of Hormuz to put pressure on long-dated futures contracts.

Bottom Line: The American consumer remains blissfully unaware of the depression that has gripped financial markets since December – and this should reduce the need for another round of monetary stimulus. Market participants betting on three or more rate cuts in 2019 may have gotten a little too far over their skis – making a convergence-led correction in currency markets more likely in the days and weeks ahead.

Karl Schamotta
Chief Market Strategist


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