James Knightley, chief international economist at ING, notes that the US June retail sales look very strong with the “core” retail sales control group rising 0.7% month-on-month (consensus 0.3%) with upward revisions to the history.
Key Quotes
“Headline sales rose a more modest 0.4% (consensus 0.2%), but even this is a firm figure that suggests the market is too aggressive in terms of pricing for interest rate cuts.”
“The headline rate was always going to be somewhat depressed given it is a nominal (value) figure and faced having to deal with a near 5% fall in the retail price of gasoline (3.6% on a seasonally adjusted basis, according to the CPI report).”
“Today’s retail sales report suggests that personal consumer spending rose robustly in 2Q, probably close to 4% annualised, which in turn will help to keep GDP growth above 2%. Despite this financial markets continue to price in four 25 basis point interest rate cuts from the Federal Reserve over the next 18 months.”
“We expect 25bp moves in both July and September as an insurance policy to try and mitigate any negative effects from lingering trade tensions. For us to put more cuts into our forecast, we would need to see a dramatic escalation in the US-China trade conflict that would lead to clear evidence of weaker hiring and investment. At this stage, there is little evidence of this happening.”
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