The Market Today
Better China Data and Noisy U.S. Retail Sales Result
by Craig Dismuke, Dudley Carter
ISM Manufacturing Index, Construction Spending, and Noisy-but-Disappointing Retail Sales Report: This week’s calendar starts off hot this morning with the February Retail Sales report, followed by the March ISM Manufacturing index and the February construction spending figures at 9:00 a.m. CT. The February retail sales data were disappointing, falling 0.2% at the headline and core levels, although positive revisions to January’s figures helped soften the disappointment. Moreover, building material sales obscured the overall results after rising 4.4% in January (largest monthly gain since 2010) only to pull back 4.4% in February (largest monthly decline since 2012). Given the large January and February swings, this appears to be a seasonal or weather-related issue. When excluding building material sales, overall sales rose 0.5% in January and 0.1% in February, a much less discouraging trend. Gasoline station sales rose 1.0% on higher gasoline prices in February and auto sales more than tripled their 12-month trend rising 0.7% MoM. Auto sales are poised to drive a healthy dose of consumer spending over the next few months and may be the sector that boosts the consumption data out of the recent doldrums. Excluding autos, gasoline, and building material sales, core retail sales fell 0.2% although the previous month’s tally was revised up from 1.1% to 1.7%.
Important Data This Week Including Trade Negotiations: The remainder of the week will bring an important run of data including the ISM non-manufacturing index and the March jobs reports. Also on the schedule are trade talks between senior U.S. and Chinese officials in Washington. Having been a key driver of markets lately, any headlines from those trade meetings could be key to market activity this week.
Overnight – No Joke, China Data Beats Expectations: The second quarter will begin in similar fashion to the way the first quarter wrapped up, with investors eyeing key U.S. economic report, the ever-changing Brexit situation, headlines from U.S-China trade talks, and inversions of the Treasury curve. Already, global bond yields have risen overnight and equities have run higher after a couple of Chinese manufacturing PMIs beat expectations. China’s CSI 300 was leading gains, up more than 2.6% and at a 12-month high after indications the manufacturing sector expanded for the first time in four months. The Caixin PMI improved from 49.9 to an eight-month-high 50.8 in March while the government’s PMI rose from 49.2 to 50.5. Adding in a better services PMI, the government’s composite index recovered to a six-month high. Regional PMIs across the rest of Asia were also firmer. Top Chinese officials will travel to Washington this week to continue trade negotiations. European equities tracked Asian markets higher to push the Stoxx Europe 600 up 0.9%, despite downward revisions to flash PMI estimates from two weeks ago. France’s manufacturing PMI was revised down 0.1 points to 49.7, its lowest level since August 2016. Germany’s was revised from 44.7 to 44.1, the lowest since 2012, and new orders slid to 39.3, a sixth month of contraction and the weakest reading since April 2009. After dipping on the revisions, and ignoring another weak inflation reading (EU March core estimate down to 1.4% YoY), European yields quickly recovered their overnight gains from the better data from China. Treasury yields were higher amid the global updraft ahead of this morning’s retail sales and ISM report. The 2-year yield had risen 2.8 bps to 2.29% while the 10-year yield had added 3.7 bps to 2.44%.
ICYMI – March 29, 2019 Weekly Market Recap: The 10-year Treasury yield reach 2.338% on Wednesday, its lowest level since 2017, in the aftermath of the Fed’s decision and weaker-than-expected European data from two weeks ago. The Fed’s decision to lower its dots as it patiently waits for more clarity on the outlook and the disappointments out of Europe sparked concerns about the health of the global economy. Last week’s U.S. data did little to settle those concerns. Growth in 4Q18 was revised down from 2.6% to 2.2% on broadly weaker dynamics. Personal income and spending data missed expectations and confirmed 1Q19 is off to a sluggish start. Consumer confidence fell unexpectedly to the weakest level since 2017. Housing activity was mixed with weaker housing starts but better new home sales. And the Fed’s preferred inflation measure showed core prices rose 1.8% from a year ago, down from 2.0% in the month before. Still, the S&P 500 rose 1.2% and wrapped up its better quarter since 2009. U.S. trade officials traveled to Beijing to continue trade negotiations, which reportedly considered a softer tone from China on technology-related matters. Click here to view the full recap.