The Market Today
Market Volatility in Focus; September Retail Sales Solid
by Craig Dismuke, Dudley Carter
Vining Sparks Economic Outlook Webinar, Thursday October 18 – The U.S. economy continues to grow at a solid rate, the labor market continues to tighten, but inflation has remained modest. This combination has enabled the Fed to continue gradually tightening monetary policy. While the economy appears to be growing above capacity longer term, this environment will likely persist into 2019. Vining Sparks will host our 4Q Economic Outlook Webinar on Thursday to summarize the economic environment as well as provide our updated growth and interest rate projections. To register, click here.
THIS WEEK’S CALENDAR
Today’s Calendar – September Retail Sales Solid with Drop in Gasoline Sales but Gains for Household Furnishing, Electronics, and Online Sales: Retail sales disappointed expectations in September rising just 0.1% MoM but were much more encouraging beneath the headline number. Helping drag the headline figure down, gasoline stations sales fell 0.8% MoM. Building material sales rose a paltry 0.1% but auto sales were up a stellar 0.8%. At the core level, excluding these volatile categories, sales rose 0.5% MoM which is a solid rebound from August’s disappointing monthly decline. Comparing the retail sales figures to personal consumption (from the GDP report), sales point to 1.5-2.0% consumption growth in 3Q. If accurate, this would be slightly weaker than expected. Looking at the broader trends, leading the recent gains in sales have been electronics and appliance stores as well as online shopping. The trend held in the September data, although sales were also boosted by a solid increase in furniture and home furnishings.
Also released this morning, the New York Fed report on regional manufacturing activity rose more-than-expected from 19.0 to 21.1. The index remains in very strong territory. On a negative note, the number of employees index fell as did the number of hours worked.
Overnight – Investors Remain Cautious Monday After Last Week’s Selling: It appears the market volatility from last week (more below) hasn’t blown over just yet. Asian markets were notably weak overnight, with China’s CSI 300 falling 1.4% to close almost on top of its lowest level since June 2016. The index is down 28.8% from its January peak. European equities were more mixed with the Stoxx 600 unchanged on the day, but U.S. futures had edged into negative territory. A sharp sell-off in U.S. equities last week rippled through global markets in the second half of last week as several concerns, primarily rising interest rates, spooked global investors. Overnight, Treasury yields were holding near Friday’s finish ahead of this morning’s important U.S. retail sales report. Oil prices, which were also put on sale last week in the global risk-off wave, were higher overnight amid the brewing tensions around a Saudi journalist allegedly murdered at the Saudi consulate in Turkey. The event has caused several prominent global financiers to call-off their trips to the country’s upcoming second annual Future Investment Initiative conference. Also, President Trump said there could be “severe punishment” if evidence shows the Saudi government was involved. After the retail sales data, U.S. futures were still negative and Treasury yields ticked lower.
ICYMI – October 12, 2018 Weekly Market Recap: Last week’s economic data was mixed and we continued to hear a chorus of Fed officials say they expect to keep gradually raising interest rates. But for a second week in a row, a bout of mid-week market volatility – this time in the stock market – is what investors were focused on. Two separate sentiment surveys, one for consumers and one for businesses, told a similar story: confidence softened a bit but remained strong in a historical context. The University of Michigan’s consumer sentiment index slipped in October to its fifth strongest level since 2004 while the NFIB’s small business optimism index edged down to its third strongest level on record. Several officials signaled they expected gradual rate increases to continue but most aren’t concerned about run-away inflation. September’s CPI report supported that belief as core prices rose less than expected on notable weakness in auto prices and slower rent increases, leaving the YoY rate at 2.2%. But a stock market sell-off on Wednesday, the sharpest since February, and Thursday pushed the major indices below their 200-day moving averages. A surged in interest rates the week prior finally seemed to catch up with equity sentiment. Click here to see how those and other events affected markets last week.