The Market Today

TODAY’S CALENDAR

Retail Sales Gains Slowed in August After Big Upward Revisions for July: The monthly gain in retail sales was weaker than expected across the board for August, in large part because July’s already-strong activity was revised up to an even more stellar result. Headline sales rose just 0.1% compared to estimates for a 0.4% gain while the prior month’s 0.5% improvement was revised up to 0.7%. Stripping out another soft month for autos, which slipped 0.8% and have weakened in each of the last three months, sales were up 0.3% compared to expectations for a 0.5% gain. July’s ex-auto sales, however, were revised up 0.3% to 0.9%. Stripping out another monthly gain for gasoline sales (+1.7%) and an essentially flat month for building materials, core sales that feed into the GDP were up a modest 0.1% versus the median expectation for a 0.4% gain. Again, however, July’s initial estimate of a 0.5% jump in core sales was revised up to 0.8%, meaning total Dollars spent over the two months was roughly as expected. In the other categories, consumers increased spending with online retailers for a seventh month in a row and added slightly to the big restaurant spend in recent months. While 3Q momentum appears to have been more heavily weighted towards July, consumer spending continues to be a bright spot for the economy.

 

Inflation Pressures Remain Lax for a Third Report this Week: After yesterday’s weaker-than-expected CPI inflation data, and Tuesday’s softer report on producer price inflation, this morning’s miss for import and export prices became the latest data point to indicate an unexpected, near-term acceleration in inflation appears unlikely. Import prices fell 0.6% compared with estimates for a 0.2% decline, thanks to in part to a 1.4% fall in the cost of fuel oil imports. Stripping those out, import prices were down 0.2%. The YoY rate of 3.7% was the lowest in four months. Export prices slipped 0.1% in August and the YoY rate declined from 4.3% to 3.6%, a five-month low.

 

Still To Come: There are two Fedspeakers scheduled to make remarks today, Chicago’s Evans at 8:00 a.m. CT and Boston’s Rosengren at 9:00 a.m. CT. The Fed will release its latest Industrial Production report for August at 8:15 a.m. CT and the University of Michigan will announce the preliminary results for its September Consumer Sentiment Survey at 9:00 a.m. CT.

 

TRADING ACTIVITY

Overnight – Global Yields Rise as Stocks Gain: Global equities firmed up overnight and sovereign yields almost exclusively ticked higher amid a quiet overnight news cycle and ahead of a busy U.S. economic calendar. Shares in China dipped to ruin a perfectly positive day in across Asia. After falling for 10 consecutive sessions through Wednesday, the longest stretch since 2002, MSCI’s Asia Pacific Index has snapped back 2.1% over the last two trading days, the strongest two-day gain since January 2017. Yesterday’s gains for U.S. tech shares appears to have carried over across the pacific with the sector near the top of major indexes in both Asia and Europe. U.S. futures rose to overnight highs at the European open with S&P 500 contracts up 0.2%. Yields in the U.K. were leading the rise in major sovereign yields after Bank of England Governor Carney reportedly told British government leaders that a no-deal Brexit could lead to a severely damaging, stagflationary outcome for the economy. Worse, it could force the central bank to aggravate the situation by tightening policy to fight inflation. The U.K. 10-year yield was up 3.4 bps to 1.54%, its highest level since May 17. The German 10-year yield was up 2.3 bps to 0.44%, the highest in over a month, while the 10-year Treasury yield had risen 1.7 bps to 2.99%, creeping back up towards 3.00% for just the second time since May.

 

Yesterday – Tech Led Stocks Higher, Helped Treasury Yield Undo Inflation-Driven Drop: Tech companies led U.S. stocks to solid gains on Thursday, as Apple contributed the most points to the Dow’s 147-point (0.57%) rise and the S&P 500’s tech sector added 1.2% to lead all sectors. The broader index improved 0.53% while the Nasdaq leverage tech’s strong performance to notch a 0.75% gain. Apple recovered after falling Wednesday following the release of its new line of phone and announcement of other product improvement. Stocks did finish below their daily peaks, however, after President Trump put a tougher spin on reports the U.S. was open to negotiating with China before moving ahead with tariffs on the next $200B of imports. The President tweeted, “…we are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing.” After tumbling on the weaker-than-expected inflation data and erasing an overnight rise, Treasury yields recovered and tracked stocks gains to end the day higher. The 2-year yield added 0.8 bps while the 10-year yield settled 0.7 bps higher.

 

NOTEWORTHY NEWS

Bostic Thinks He Sees Hikes for a “Handful of Quarters”: Atlanta Fed President Bostic has made several appearances recently, so his statement on Thursday that he sees just one more rate increase this year was no surprise. However, he did comment on yesterday’s inflation missing, saying that the softer-than-expected August CPI print “suggests there may be some space for the economy to run.” “There is still some uncertainty whether we are at full employment and that there is a risk of overheating,” Bostic added, and so the Fed has “an ability to be more patient in our pathway.” Bostic earlier said he supported pausing once the Fed gets to neutral, a statement he repeated on Thursday, but clarified his estimate of that rate to be between 2.5% to 2.75%.