Don’t forget the data.
It’s a big week for monetary policy, with the Fed set to deliver the first cut of the cycle, the Bank of Japan still grappling with the global ramifications of an overdue exit from accommodation and the Bank of England tasked with sorting out a bit of bothersome QT math.
But market participants who trade or track the world’s largest economy will also need to parse a few notable macro releases, including an update on retail sales.
29 and a half hours before the Fed tells us whether it’s 25 or 50, the Commerce Department will tell the market how strong or, in this case, perhaps not, the spending impulse was last month. Nominal sales likely fell 0.2% in August, economists reckon. Some caveats are in order. The decline would be down to car dealerships. Core retail sales probably held up fine.
Nominal sales rose sharply the prior month as distortions tied to the CDK cyberattack reversed. The control group was solid in July too, suggesting the American consumer wasn’t inclined to retrench at the beginning of Q3.
As noted above, the Fed will see the retail sales update prior to deciding on the size of the first rate cut. Barring a truly dramatic surprise in either direction, the data won’t have any bearing on the outcome of the FOMC meeting.
As a quick reminder, real retail sales haven’t gone anywhere in a very long time.
I highlighted the figure above a few weeks ago, but it’s worth mentioning again. It paints a starkly different picture than you get from the unadjusted series.
“We suspect the immediate tradability of the spending details will be dampened by the proximity to the Fed [but] the control group surprised on the upside during the last couple of months as consumers continue to defy expectations for a more meaningful pullback in spending,” BMO’s Ian Lyngen and Vail Hartman remarked, previewing Tuesday’s release. “An additional month of solid retail spending stands to uphold expectations for another quarter of healthy growth in Q3 with the Atlanta Fed’s GDPNow tracker at an impressive pace of 2.5%.”
In addition, the first of this month’s housing data (covering August, except for NAHB which captures builder moods at the beginning of September) is due.
The NAHB gauge should rebound this month. Recall that August’s print was a very poor 39. But that didn’t capture the big drop in mortgage rates that ensued pretty much immediately after the survey was conducted. Rates are now the lowest since February of 2023. That should help improve the mood among builders, although consensus expects just a small uptick, to 41.
Unless there’s a truly dramatic inflection, sentiment will spend another month below the threshold separating net optimism from pessimism.
As for the resale market, an update on existing home sales will probably show another decline. Sales managed to increase in July, but the pace remained hopelessly tepid and the NAR’s gauge of pending home sales just hit a record low, not exactly the stuff big recoveries are made of, although I guess it’s always darkest before the dawn.
Also on the US docket: Housing starts and permits, the Empire survey and jobless claims for NFP survey week.
I admit I’m staring into a rabbit hole … is data in and of itself meaningful any more? … seems to me, reactions (machines) and responses (humans) are where the rubber now hits the road, and those are all set up with pre-data bias and pre-conceived notions (predictions) – either in code or mental models. Outliers and surprises distort, right? So we don’t trade the data, we trade responses to it.
Great observation Michael. Models are just that.
I’m certain that the best minds and machines are also looking for ways to front run the other machines and humans.
Data only comes from yesterday. Once you have it, the question, of course, how to react to it. However, because the economic/financial outcomes of all individuals, companies, governments, and social groups to which they are linked are always mediated by the outcomes of the actions and relationships of those linked groups and stakeholders to which they are connected. So the the real chore is to understand the expected responses of those connections first, before deciding one’s own actions. Since none of us really understands what the machines, especially, will do, that makes the choice of more personal choices more a matter of luck than skill, IMO. However, to have any chance of making good choices we really need to have some sense of the web of relationships in which we are tangled and.dare I say it, at least a basic model of how the web functions.
I taught this to my strategy students for decades but they really didn’t want to bother with it. It suddenly occurs to me that the complexity of our decision environments may be a major driver causing a rise in the degree which we are becoming self-centered reality deniers.
This is an outstanding explanation of a real world, day-to-day application of “game theory” – especially as I think about this as it applies to my “web” of family members/relationships.
With respect to my analysis on how my investments will do under KH vs. DT, I am indifferent. I have thought this through and will modify my actions (but only slightly) after I see not only the outcome of the elections, but also the actions taken by those elected to office.