The Market Today
Retail Sales Rebound Unconvincingly in January
by Craig Dismuke, Dudley Carter
Retail Sales Rebound Unconvincingly; Another Positive Sign for Housing: Retail sales rebounded partially in January, although the disastrous December report was revised even lower and January’s strength primarily came from building material sales (often flowing through the GDP report in the form of residential investment). December’s core retail sales (ex. autos, building materials, and gasoline) tally was revised down from -1.7% to -2.3%, then rebounded +1.1% in January. Even versus expectations of a +0.6% rebound in January from December’s originally reported -1.7%, the January data were one-tenth weaker than expected. Worth noting, building material sales rose 3.35% MoM in January, the fifth best month since the first-time Homebuyers tax credit program. Coming on the heels of last week’s reported gains in new home sales, housing starts, and building permits; this morning’s retail sales figures are another positive sign for housing activity. On the opposite side, auto sales fell 2.4% in January, their weakest month in five years. While the rebound is welcomed news, it is not entirely convincing that the consumer has turned the corner following the year-end slide.
Overnight – Global Markets Recover Ahead of U.S. Consumer Data: Global markets were mostly upbeat Monday despite being disappointed last week by some weaker-than-expected data from the world’s two largest economies and lower growth forecasts from a couple of key professional economic bodies (more below). Chinese indices were up 2% or more and leading a broad recovery across most Asian markets. The MSCI Asia Pacific Index fell 1.9% in response to last week’s uncertainty, its worst week of 2019. The Stoxx Europe 600 had gained a solid 0.3% and mainland European yields were modestly higher. Yields on UK Gilts had moved lower ahead of Tuesday’s parliament vote on PM May’s Brexit plan. Depending on the outcome, additional votes could follow to determine if there is support for a no-deal Brexit or delay of Article 50’s expiration which is set to occur later this month. Before this morning’s U.S. retail sales data, U.S. equity futures were mixed, with the S&P 500 and Nasdaq tilted into positive territory while the Dow dropped notably on pre-market weakness in shares of Boeing. The company’s shares were off more than 9% after several countries grounded its latest model 737 following another deadly crash on Sunday in Ethiopia that killed 157 people. Treasury yields had ticked up overnight by 1 to 2 bps before January’s retail sales data.
ICYMI – March 8, 2019 Weekly Market Recap: After reaching its highest level since November on the first day of March, the S&P 500 rolled over last week on multiple reminders that the near-term outlook remains highly uncertain. The index fell 2.9%, breaking a five-week streak of gains and closing at its lowest level in a month. China lowered its growth target from 6.5% to a range of 6% to 6.5%, while announcing stimulus measures aimed at stimulating the private economy. Later data showed another disappointing Chinese PMI print and weaker-than-expected trade activity. In addition to weaker expectations for China, a notable reduction in growth expectations for EU countries led the OECD to cut its global growth forecast for 2019. A day later, the ECB cut its 2019 growth forecast from 1.7% to 1.1% and lowered the expected inflation path to a below-target peak of 1.6% by 2021. In response, the central bank made a notable policy pivot by pushing the possibility of a rate hike until at least 2020 and announcing additional stimulus in the form of cheap funding for European banks. There were continued calls from multiple Fed officials for patience and a mixed week of U.S. data was capped by a noisy nonfarm payroll report. Job growth slowed sharply to 20k but was likely affected by weather and reflected a mean reversion from an unusually large hiring surge in January. Unemployment dipped 0.2% to 3.8%, underemployment sank 0.8% to an 18-year low 7.3%, and wage growth picked up to a cycle-high 3.4%. Click here to view the full recap.
Fed Chair Powell Said Policy Is “In an Appropriate Place”: Fed Chair Powell said the current Fed Funds target range is “roughly neutral” in an interview with 60 Minutes that was broadcast on Sunday evening. He said, “The outlook for the U.S. economy is favorable, …The principal risks to our economy now seem to be coming from slower growth in China and Europe and also risk events such as Brexit.” “What’s happened in the last 90 or so days is that we’ve seen increasing evidence of the global economy slowing down,” Powell said, and “we’re going to wait and see how those conditions evolve before we make any changes to our interest-rate policy.” He noted that, “Inflation is muted and our policy rate we think is in an appropriate place.” In an earlier speech Friday evening after markets had closed for the week, Powell signaled a similar tone. “With nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures,” Powell said, “the Committee has adopted a patient, wait-and-see approach to considering any alteration in the stance of policy.”