US June Retail Sales Data Shows Highest Monthly Increase in Three Months, Excluding the Impact of Cyber Attacks on Auto Dealers. US Consumer Spending Rebounds, but Market Still Predicts a 100% Chance of Fed Rate Cuts in September.
Summary:
Powell’s Dovish Stance: Inflation Data Boosts Fed’s Confidence in Rate Cuts, Keeping an Eye on Unexpected Weakness in the Labor Market.
Background:
Powell Singing Dovish Tune: Rate Cuts Possible Even Without Inflation at 2%! Ensuring Soft Landing of Economy and Maintaining Low Unemployment Rate.
Table of Contents:
Market Estimates 100% Chance of Fed Rate Cuts in September.
US Stocks Rise, Dow Soars Over 740 Points, Reaching Historic High.
Bitcoin Breaks $66,000 Mark.
The US Census Bureau released monthly retail sales data for June, indicating that retail sales in June were flat compared to May (2.3% YoY growth), as the decline in revenue for auto dealers due to the CDK cyber attack was offset by strong performance in other sectors, reflecting the resilience of US consumer spending.
According to Bloomberg, excluding the impact of cyber attacks on auto dealers, US retail sales in June recorded the highest increase in three months, with retail sales excluding autos growing by 0.4% compared to the previous month (not adjusted for inflation), revising the May growth rate to 0.1%, indicating a rebound in consumer spending at the end of the second quarter.
Note: CDK Global, the largest automotive dealer software supplier in the US, suffered a cyber attack in mid-June, causing over 10,000 auto dealerships to halt operations and sales to plummet in the second quarter. However, the industry expects sales to rebound in July.
Image: Retail sales growth rate data excluding the impact of cyber attacks on auto dealers. Source: Bloomberg
This data contradicts the trend of slowing consumer growth in recent months. In the first half of the year, the US has experienced pressure from higher interest rates and a cooling labor market. This indicates that despite the cooling inflation data, the US economy remains robust as the Fed prepares to start cutting rates.
Rubeela Farooqi, Chief US Economist at HighFrequency Economics, commented, “Consumer and economic activity has significantly slowed down until now in 2024. However, the situation is far from weakening to the extent of being considered a recession. We believe that the improvement in expenditure, growth data, and inflation data supports a relaxed monetary policy stance.”
Quincy Krosby, Chief Global Strategist at LPL Financial, told Reuters, “This report does not negate the expectation of a rate cut by the Fed at the September 18 meeting, unless data related to inflation indicates rising prices.”
The latest retail sales data release did not weaken market expectations of a rate cut in September. The CME FedWatch tool shows a 100% probability of a Fed rate cut in September (93.3% chance of a 25 basis point cut and 6.7% chance of a 50 basis point cut).
Additional Reading:
Powell’s Major Shift: US Labor Market Has Significantly Cooled, Fed Sending Clear Signals of Rate Cuts.
With the financial market expecting a 100% chance of rate cuts in September and further cuts in November and December, major US stock indices closed higher on Tuesday. The Dow soared over 740 points, marking its best single-day performance in 13 months, and both the S&P and Nasdaq reached all-time highs.
The Dow Jones Industrial Average rose 742.76 points, or 1.85%, to close at 40,954.48.
The Nasdaq Composite rose 36.77 points, or 0.20%, to close at 18,509.34.
The S&P 500 rose 35.98 points, or 0.64%, to close at 5,667.20.
The Philadelphia Semiconductor Index rose 26.32 points, or 0.46%, to close at 5,804.03.
Earlier today, Bitcoin also surged to $66,117, temporarily reporting $65,176 before the deadline, with a 1.76% increase in the past 24 hours.
Image: Source: OKX
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