Data add to safe haven rally

The weaker than expected retail sales have added to the safe haven rally in Treasuries, where yields are dropping to new lows for 2019. The front end is leading the way as the market continues to look for a Fed rate cut down the road.

The Dollar slipped as well, with EURUSD recovering from lows of the week at 1.1178, topping at 1.1192, while USDJPY fell to 109.20 from 109.30.

U.S. April retail sales fell 0.2% overall, with a scant 0.1% gain in the ex-auto component, both weaker than forecast. And they follow respective March gains of 1.7% (revised from 1.6%) and 1.3% (revised from 1.2%). Excluding autos, gas, and building materials, sales were unchanged versus the prior 1.1% gain previously (revised from 1.0%). Weighing on the headline was a 1.1% drop in vehicle sales after a 3.2% March rebound (revised from 3.1%). Building materials tumbled 1.9%, with electronics sales sliding 1.3%. Gas station sales rose 1.8% versus 3.3% previously (revised from 3.5%). Clothing sales dipped 0.2%, with non-store retailers sales off 0.2% as well. Food sales edged up 0.2%, with healthcare declining 0.2%. The much weaker than expected report will add to worries over the U.S. consumer.

On the flip side, US Empire State manufacturing index increased 7.7 points to 17.8 in May, better than expected, after bouncing 6.4 points to 10.1 in April. The index is back close to where it was a year ago at 20.6. This was a solid report, with moderate inflation stats.