Before the May retail sales report, I wrote about how the metric I would be watching most-closely wasn't the control group, but the market. We've been a bad-news-is-good-news regime for the past 18 months but evidence has been mounting that the market is beginning to see the Fed as behind the curve.
That will ignite a kicking-and-screaming phase on bad news and today's retail sales report shows we're getting closer.
Equity futures so far are modestly below pre-data levels after a jump on the data was quickly faded.
Overall, I'd say this shows more of a standstill or a transition than a regime change but it looks like we're headed in that direction , particularly if that data continues to disappoint and the Fed remains unwilling to commit to cutting rates.
In FX, the US dollar's reaction to the report was straightforward as it fell 15-25 pips across the board. On net, the data was soft but it wasn't bad. The main headline is the control group and it was up 0.4%, in line with estimates. However that came with a 0.2 percentage point downward revision to April to -0.5%.
The old adage is to never underestimate the US consumer but the weakness is in housing-related categories like building materials and furniture so higher rates are working to some extent (autos +0.8% m/m though). If you look out over the past year, retail sales are up 2.3%, which is below the level of inflation so are declining in real terms.
I'll be curious to see the latest commentary from retail giants like Walmart and Target.
