Instant View: Strong data takes 50 bp cut in September off the table
2024.08.15 09:36
(Reuters) – U.S. retail sales rose more than expected in July, which could help to allay financial market fears of a sharp economic slowdown that were fanned by a jump in the unemployment rate.
Meanwhile another report showing a smaller than expected increase in the number of American’s filing for unemployment benefits last month showed resilience rather than deterioration in labor market conditions and lifted stock futures, Treasury yields and the dollar.
Futures traders raised the odds that the Federal Reserve will ease by just 25 basis points in September to about 75% after the Commerce Department said retail sales increased 1.0% last month after a downwardly revised 0.2% drop in June. Economists polled by Reuters had forecast retail sales advancing 0.3% after previously being reported as unchanged.
MARKET REACTION:
STOCKS: E-minis extended gains and were up 0.94%BONDS: The yield on benchmark U.S. 10-year notes rose to 3.928%, the two-year note yield jumped to 4.089% FOREX: The turned 0.51% higher
COMMENTS:
STEVE WYETT, CHIEF INVESTMENT STRATEGIST, BOK FINANCIAL, TULSA, OKLAHOMA
“The overall message that I would take from this number is that the angst that the market was feeling a week and a half ago after a weaker than expected employment report and this idea that the Fed was dropping behind and that the economy was sliding into a recession and we built in 50 basis points in easing in September is just backing that off.”
“The economy is not going into a recession imminently. This will take 50 basis points in September off the table. Still think that 25 basis points make sense just because inflation continues to ease and we got a couple of good reports, PPI and CPI adding to that.”
“We have the all-important employment data before the next Fed meeting but this should reduce the feelings that the economy is imminently going into a recession.”
“The early calls during that market volatility for the Fed to do something on an emergency basis now look even further out of line than what we felt they were at the time they were made.”
CHRIS LARKIN, MANAGING DIRECTOR, TRADING AND INVESTING, E*TRADE FROM MORGAN STANLEY, NEW YORK
“Today didn’t deliver any major curveballs. More data like this could ease concerns that the economy is tilting toward recession and take pressure off the Fed to cut rates more aggressively than they’d like to.”
BRET KENWELL, U.S. INVESTMENT ANALYST AT ETORO, PETOSKEY, MICHIGAN (via email)”The retail sales report beat expectations across the board, with strong headline figures and stronger-than-expected control group sales — the most stringent cut of data within the report. We’re back to an environment where good news is good news and bad news is bad news.” “Given the recent worries over the labor market, today’s lower-than-expected jobless claims data is another positive and marks the second consecutive miss for this report. Combined with a strong retail sales report, investors are breathing a sigh of relief this morning, letting recent worries of economic softness subside. While it would still be appropriate for the Fed to lower rates next month, today’s reports should buy them some time until the September meeting.”
