Yesterday’s Retail Sales data for July was a surprise to the upside, gaining 1% (and 18-month high) vs. a 0.4% estimate. When excluding autos and gas the gain drops to 0.4%, but still outpaced the 0.2% estimate. Motor Vehicle & Parts Dealers category showed the biggest gain, +3.6%. This was followed by a 1.6% gain in Electronics & Appliance Stores, +0.9% in Building Materials & Garden Equip dealers and Food & Beverage Stores, and +0.8% in Health & Personal Care.
The biggest declines were -2.5% in Miscellaneous Store Retailers and -0.7% in Sporting Goods, Hobby, Musical Instrument, & Book Stores.
Inflation can’t prevent everyone from pampering themselves with new cars, electronics, home improvements, and maintaining appearances with health and beauty products. And this is what worries the Fed about cutting rates too soon. A significant cross section of U.S. demographics doesn’t feel the inflation and hardly needs stimulus (in the form of lower rates) to keep spending, while another swathe (primarily on fixed income) is having to forego some essentials. A tale of two economies.
U.S. Treasury yields are lower for the week, pressuring the dollar, as a September rate cut becomes more inevitable by the day. Traders are pricing in 25-basis-point cuts at the FOMC’s next five meetings and see rates dropping a full 2% by June of 2026.
The U.S Dollar Index is -0.44% this week, led by losses vs. emerging market currencies ZAR (-2.52%) and MXN (-1.18%). Weekly declines against the G10: -1.17% vs. GBP, -1.08% vs. AUD, -0.75% vs. EUR, -0.55% vs. NZD, and -0.19% vs. CAD.
Housing Starts for July were 1238k, below the 1333k estimate, dipping -6.8% vs. June. Monthly Building Permits were -4.0%.
