The August US retail sales report, the final top-tier data point before tomorrow’s eagerly-anticipated FOMC decision, showed headline sales rising by 0.1%, considerably better than the 0.2% decline that consensus had expected.
The headline beat represents the 5th straight August in which retail sales has surprised to the upside.
Meanwhile, the control group metric, which broadly represents the basket used in the GDP release, rose by 0.3% MoM for the second straight month.
Financial markets have, largely, taken the sales release in their stride, though the USD has found some demand, especially against the higher-beta sections of the G10 FX space, as Treasuries pare earlier gains across the curve.
While the sales figures were, clearly, a touch better than participants had expected, the data may only temporarily halt the continued dovish drift in market expectations ahead of tomorrow’s FOMC decision. Markets are, it would seem, trying their hardest to again bully the Committee into their desired course of action, in the knowledge that just once since 2009 have the FOMC delivered a decision that differs by more than 10bp from what markets had priced prior to the announcement itself.
Only time will tell whether Powell & Co. remain resilient in the face of the recent dovish repricing, though my base case remains for just a 25bp cut tomorrow, accompanied by relatively dovish guidance, stating a readiness to move more aggressively were economic conditions to worsen.
Such an outcome could well result in knee-jerk softness in the equity space, though with the ‘Fed put’ still forceful, and policymakers having plenty of room to cut if conditions were to require it, the path of least resistance continues to lead to the upside over the medium-term.
