Retail sales and the July FOMC minutes headline in the US this week.
Notwithstanding ongoing tension in the bond market and a lot of “chop” in equities, the calendar doesn’t exactly scream excitement.
That’s not to say there won’t be any. Excitement, I mean. As detailed in the weekly+, the conditions are in place for stocks to move, and accelerant flows could exacerbate overshoots in both directions. US equities lost the gamma “pin” and systematic exposure is vulnerable to de-risking in the event the index manages to realize a wider distribution of daily outcomes. 0DTE dynamics introduce more fireworks potential.
But it’s the middle of August and we’re sandwiched between CPI (last week) and Jackson Hole (August 24 and 25), so I’d be just as unsurprised by a boring week as I would be an exciting one.
Consensus is looking for 0.4% from the headline US retail sales print. That’d mark a re-acceleration from June’s headline pace.
Another monthly gain would make four in row, underscoring your favorite “resilient consumer” narrative. This is (obviously) nominal sales, but inflation is decelerating.
The health of the US consumer is of intense interest to policymakers who, behind closed doors, would probably rather Americans dial it back a little. Core inflation is still far too high, and that’s in part due to spending on services, which comprise the lion’s share of the US economy and so on. You know the story.
With the labor market still adding jobs at a healthy (if slower) pace, real wage growth now positive and sentiment improving, it’ll be harder to dissuade consumers, particularly given the read-through for the vaunted “wealth effect” of this year’s equity rally and home prices, which are rising again. Americans also have more than $3 trillion in spare capacity on their credit cards.
But there are signs of strain or, at the least, reasons to believe the consumer will eventually pause, if not retrench. Credit card debt in America topped $1 trillion for the first time in Q2, and credit card rates are at record highs. In addition, “interest costs on other loans [are] detracting discretionary dollars,” BMO’s Ian Lyngen and Ben Jeffery remarked.
The chart above, from Lyngen and Jeffery, shows that interest costs ex-mortgage payments have “increased in a way that has typically only been seen in the final innings of any given cycle,” as they put it, adding that when you throw in the resumption of student loan payments, “there are headwinds to consider in evaluating the durability of the domestic consumer… even before the labor market starts to turn.”
In addition to retail sales, US housing updates covering July start to roll in this week. Market participants are eying starts and permits closely amid a structural supply-demand mismatch exacerbated by an acute dearth of resale inventory. Mortgage rates breached 7% in the wake of the early-August Treasury selloff. The higher rates are, the less likely current homeowners are to sell, thereby limiting the scope for existing properties to absorb pent-up demand. That puts the onus on new construction. NAHB will offer a fresh read on builder sentiment.
Other than that, it’ll be left to the July FOMC minutes to pique US traders’ interest. I’m not sure there’ll be a lot to glean, honestly. We know where the Committee generally stands: In light of better inflation figures, the Fed is divided on the necessity (and probably on the utility too) of squeezing in the final hike tipped by the June dots. The September gathering is almost surely a skip, and it’s entirely possible (read: more likely than not) that the labor market will soften further between now and the November meeting. Suffice to say the September SEP will be interesting.
Also on deck this week: Activity data out of China and inflation figures out of the UK.
