May Retail Sales Increase by 0.1% MoM
Below Forecast (0.4%) and April (-0.2%) Figures
Industrial Production Rises 0.9%, Exceeding Expectations
The three major indices of the U.S. New York stock market showed mixed movements in the early session on the 18th (local time), hovering around the flat line. The May retail sales data came in weaker than expected, while industrial production exceeded forecasts, resulting in the indices failing to find a clear direction. U.S. Treasury yields are declining.
As of 9:59 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was up 0.07% from the previous close, standing at 38,803.81. The large-cap focused S&P 500 index rose 0.12% to 5,479.9, while the tech-heavy Nasdaq index traded down 0.01% at 17,855.98.
By individual stocks, semiconductor shares are rising. Nvidia is up 1.43%. Qualcomm jumped 2.93%, and TSMC and Micron surged 2.68% and 4.75%, respectively.
The May retail sales released this morning showed a slower-than-expected increase. The U.S. Department of Commerce reported that retail sales rose 0.1% month-over-month last month. This missed both the market forecast of 0.3% and April’s figure of -0.2%. The April retail sales growth rate was revised down from 0% to -0.2%. Among the 13 retail categories, five showed declines, including gas stations (-2.2%), furniture (-1.1%), and building materials, garden equipment, and supplies dealers (-0.8%).
The retail sales indicator is considered a pillar accounting for two-thirds of the U.S. real economy and is used to assess the overall economic trend. The slower-than-expected increase in consumer spending last month is expected to contribute to the recent easing trend in inflation indicators such as the Consumer Price Index (CPI) and Producer Price Index (PPI).
Following the retail sales data release, investors are increasing bets on interest rate cuts this year. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market currently prices in a 67.7% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting, up from 61.5% the previous day. The probability of a 0.25 percentage point or greater cut in November rose from 75.6% to 80.8%.
David Russell, Global Head of Strategy at TradeStation, said, "Expectations for rate cuts are spreading," adding, "Consumers and the overall economy are hitting a wall. The Fed’s hawkish (monetary tightening preference) policies from 2022 to 2023 are finally taking effect."
The U.S. industrial production for May, released this morning, showed a 0.9% increase month-over-month, surpassing both the expert forecast of 0.3% and the previous month’s -0.4% figure.
Remarks from Federal Reserve officials continue today. Richmond Fed President Thomas Barkin, Boston Fed President Susan Collins, Dallas Fed President Lori Logan, Fed Board member Adriana Kugler, and Chicago Fed President Austan Goolsbee are scheduled to speak. Investors are expected to look for clues about potential changes in the future interest rate path amid a slowing U.S. economy and easing inflation pressures. Previously, the Fed reduced its projected number of rate hikes this year from three to one at the Federal Open Market Committee (FOMC).
Yesterday, Philadelphia Fed President Patrick Harker reaffirmed his forecast for one rate cut this year. Harker said, "If everything goes as expected, one rate cut by the end of this year would be appropriate," adding, "If the data breaks in any way, there could be two rate cuts this year or none at all. We will remain data-dependent."
U.S. Treasury yields are falling. The 2-year Treasury yield, sensitive to monetary policy, dropped 4 basis points (1 bp = 0.01 percentage points) to 4.71%, while the 10-year Treasury yield, a global bond yield benchmark, fell 3 basis points to around 4.24%.
International oil prices are steady amid mixed outlooks of abundant supply and rising summer demand. West Texas Intermediate (WTI) crude oil rose $0.03 to $80.36 per barrel, while Brent crude, the global oil price benchmark, fell $0.02 to $84.23 per barrel.
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