Monthly Retail Sales data for September was reported +0.7%, more than double the +0.3% survey estimate. And the figure for August was revised upwards to +0.8% vs. the +0.6% preliminary report. Total Retail and Food Services sales increased 3.1%, and when excluding motor vehicles/parts & gasoline station sales, retail sales increased 5%. Between retail sales trending higher, stubbornly high inflation, and the central bank policy rate (5.50%) at its highest point since 2001, one must wonder how these conflicting economic themes are able to coexist.
Retail Sales categories that experienced declines were Furniture & Home Furnishing Stores (-4.4%), Building Material & Garden Supplies Dealers (-2.8%), and Electronics & Appliance Stores (-2.1%). These declines parallel the downtrend in the housing sector, impacted by the highest mortgage rates in 23 years.
U.S. Treasury prices are lower in the wake of the blowout Retail Sales data, as traders pile on bets that the Fed’s hand will be forced to raise rates even higher until American consumers can no longer absorb spiraling prices. The yield curve is higher in all tenors with the biggest gains weighted towards the long end (6-year through 25-year yields are +0.11%). Fed Funds Futures now imply a 14% chance of a 25 basis-point hike at the FOMC’s November meeting, a 33% probability of a hike at the December meeting, and even a 7.9% implied chance of a hike at the January meeting, a new development.
The USD is higher vs. all G10 currencies and most other majors. The dollar’s biggest gain among the majors is a 0.75% surge vs. the MXN peso, followed closely by a 0.73% gain vs. NZD.
Futures on the major U.S. equity indexes have turned lower, the possibility of higher borrowing costs seen as a drag on business bottom line.
Monthly Canadian CPI for September was -0.1%, lower than the +0.1 estimate. And yearly CPI +3.8%, below the +4.0% estimate.
Oil is -0.16% and gold is trading +0.24% at $1,925.02/oz.