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The US consumer flex his muscles again in June with the retail sales control group up 0.9% compared to 0.2% expected — the highest in more than a year. That was part of a broadly-strong US retail report that has underpinned a US dollar rally and raised questions about the path of Fed funds.

Pricing for rate cuts fell to 64 basis points this year from 68 bps before the data. The US dollar rose 30-50 pips across the board and Treasury yields rose, particularly at the front end with 2s now up 5 bps from pre-data levels to 4.47%.

The question for the Fed is how hard they want to lean into the ‘soft landing’ scenario. A strong retail sales number isn’t necessarily bad from their perspective so long as it comes with continued improvements in inflation. That said, if consumers continue to spend aggressively, it’s inevitable that retailers will raise prices.

The dollar climb was broad and adds to the headache for officials in Japan who are trying to limit USD/JPY gains.

This article was written by Adam Button at www.forexlive.com.

• Prior was 264.5K (revised to 264.9K)

• Single detached +2% vs +2% prior
• Multi-urban starts -12% vs +13% prior

This article was written by Adam Button at www.forexlive.com.

• Prior import prices -0.4% m/m (revised to -0.2%)
• Import prices y/y 0.0% vs +1.1% prior
• Export prices m/m -0.5% vs -0.1% expected (prior -0.6%)

This is a low-tier release, particularly as this month’s edition comes after CPI and PPI.

This article was written by Adam Button at www.forexlive.com.

• Prior month of 0.1% revised 2+0.3%

Details:

• Retail sales 0.0% vs -0.3% estimate
• Retail sales YoY +2.3%
• Ex Autos 0.4% vs 0.0% estimate
• Prior ex autos -0.1% revised to 0.1%
• Control group 0.9% vs 0.2% estimate
• Prior month control group 0.4%
• Ex autos and gas 0.8% vs 0.3% last month. Prior month revised from 0.1%

Stronger from all angles vs expectations. In addition the revisions for the retail sales were better as well.

This article was written by Greg Michalowski at www.forexlive.com.

• Prior month 2.9%
• CPI m/m -0.1% vs 0.0% expected
• Prior m/m +0.6% prior

Core measures

• CPI Bank of Canada core y/y 1.9% vs 1.8% prior
• CPI Bank of Canada core m/m -0.1% versus 0.6% prior
• Core CPI m/m SA +0.1% vs 0.3% prior
• Trim 2.9% versus 2.9% prior
• Median 2.6% versus 2.8% prior (prior revised to +2.7%)
• Common 2.3% versus 2.4% prior

This matches the lowest y/y reading since the pandemic and should be the final straw that confirms a July 24 rate cut (it’s now 89% priced in). That would be back-to-back cuts and raises questions about whether the cut-every-meeting pace will be kept up.

USD/CAD jumped to 1.3687 from 1.3666 on this release but it was largely on the US dollar side as US retail sales crushed expectations.

The monthly decrease was driven by lower prices for travel tours (-11.1%) and gasoline (-3.1%).

Year over year, lower prices for durable goods (-1.8%) also contributed to the slowdown in the all-items CPI
in June with auto prices down 0.4% y/y. Moderating the deceleration was an increase in prices for food
purchased from stores (+2.1%), as well as a smaller decline for
cellular services in June (-12.8%) compared with May (-19.4%).

This article was written by Adam Button at www.forexlive.com.

It’s a blockbuster start to the day for North American traders with two major releases.

The US retail sales report is forecast to fall 0.3% with a flat reading ex-autos and the control group up 0.2%. There haven’t been clear signs of consumer weakening but some sentiment measures have deteriorated and airlines have flagged a dip in demand.

At the moment, the market is pricing in 68 bps in easing through year end.

In Canada, the CPI report for June is due and it’s a critical one with the market priced for an 83% chance of a cut next week. Those numbers have crept up but I don’t think they’re as solid as they look, especially if CPI runs hot. The consensus is 0.0% m/m and +2.8% y/y.

This article was written by Adam Button at www.forexlive.com.

I posted this during the best Asian time zone, repeating it now with the data due imminently:

• 1230 GMT / 0830 US Eastern time.

Consensus expectations are in the table below. This snapshot is from the ForexLive economic data calendar, access it here.

• The numbers in the right-most column are the ‘prior’ (previous month/quarter as the case may be) result. The number in the column next to that, where there is a number, is the consensus median expected.

As for the ranges. For Retail sales m/m:

• -0.6% to +0.4%

For Retail sales excl autos m/m:

• -0.3% to +0.3%

***

Why is knowledge of such ranges important?

Data results that fall outside of market low and high expectations tend to move markets more significantly for several reasons:

• Surprise Factor: Markets often price in expectations based on forecasts and previous trends. When data significantly deviates from these expectations, it creates a surprise effect. This can lead to rapid revaluation of assets as investors and traders reassess their positions based on the new information.

• Psychological Impact: Investors and traders are influenced by psychological factors. Extreme data points can evoke strong emotional reactions, leading to overreactions in the market. This can amplify market movements, especially in the short term.

• Risk Reassessment: Unexpected data can lead to a reassessment of risk. If data significantly underperforms or outperforms expectations, it can change the perceived risk of certain investments. For instance, better-than-expected economic data may reduce the perceived risk of investing in equities, leading to a market rally.

• Triggering of Automated Trading: In today’s markets, a significant portion of trading is done by algorithms. These automated systems often have pre-set conditions or thresholds that, when triggered by unexpected data, can lead to large-scale buying or selling.

• Impact on Monetary and Fiscal Policies: Data that is significantly off from expectations can influence the policies of central banks and governments. For example, in the case of the retail sales data due today, weaker than expected will fuel speculation of nearer and larger Federal Open Market Committee (FOMC) rate cuts. A stronger (i.e. higher) sales report will diminish such expectations.

• Liquidity and Market Depth: In some cases, extreme data points can affect market liquidity. If the data is unexpected enough, it might lead to a temporary imbalance in buyers and sellers, causing larger market moves until a new equilibrium is found.

• Chain Reactions and Correlations: Financial markets are interconnected. A significant move in one market or asset class due to unexpected data can lead to correlated moves in other markets, amplifying the overall market impact.

This article was written by Eamonn Sheridan at www.forexlive.com.

• Dollar keeps steadier so far on the day, eyes on US retail sales later
• US retail sales gains more attention as Japan eyes big data to intervene
• BOJ data suggests Japan also intervened in the FX market on 12 July
• Eurozone May trade balance €13.9 billion vs €15.0 billion prior
• Germany July ZEW survey current conditions -68.9 vs -74.5 expected
• 10-year Treasury yields erase the jump higher from yesterday
• Italy June final CPI +0.8% vs +0.8% y/y prelim
• European stocks hold lower in the opening stages today
• What are the main events for today?
• Geopolitics trumps higher inflation as top tail risk in latest BofA fund manager survey
• Eurostoxx futures -0.4% in early European trading
• FX option expiries for 16 July 10am New York cut
• A couple of light releases to move things along in European trading today

It was an
uneventful European session with no central bank speaker and just the German
ZEW survey as the main highlight. The survey recorded the first decline in 2024
due to a bigger than expected fall in German exports in May, the political
uncertainty in France and the lack of clarity regarding the future monetary
policy by the ECB.

The index
has been climbing steadily, so a minor pullback isn’t something to be concerned
about. The situation indicator for the Eurozone, on the other hand, changed
only marginally climbing 2.5 points to a new reading of minus 36.1 points.

In the
markets, the major currencies are little changed with the US Dollar flat on the
day. Treasury yields erased yesterday’s gains. The S&P 500 and the Nasdaq
are mostly flat while the Russell 2000 continues to outperform.

Gold is
having another good day as it’s up 0.80% while crude oil is going for the third
consecutive negative day being down 1.40%. Bitcoin was down almost 4.0% at some
point but has recovered half the losses and it looks like it has further legs
to the upside.

The focus
will now switch to the Canadian CPI and US Retail Sales data both due in an hour.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

There’s not much in it in European morning trade today. The dollar is largely steadier, with USD/JPY coming off a little from around 159.70 in Asia to 158.40 currently. That comes as traders look to be heeding some caution ahead of the US retail sales data later today. From earlier: US retail sales gains more attention as Japan eyes big data to intervene

Besides that, EUR/USD is trading narrowly near 1.0900 with large option expiries still locking the pair. And there is little change among GBP/USD, USD/CHF and USD/CAD as well.

The aussie and kiwi are marginally lower amid a softer Chinese yuan but that’s about it. NZD/USD though is also one to be wary about as it is vulnerable to a downside break.

It’s now over to the US retail sales data to see how that will shake things up on the day.

This article was written by Justin Low at www.forexlive.com.

The latest yen-tervention efforts are a step out of the norm as Japan looks to be trying out a new strategy. And that is to bank on softer US data in driving down USD/JPY in particular. From earlier: BOJ data suggests Japan also intervened in the FX market on 12 July

They stepped in on Thursday following the US CPI report and did so again on Friday after arguably 30 mins following the US PPI report. On the latter, it seemed like they waited for a bit just to make sure that markets were not going to respond against them as the producer price numbers were hotter than expected.

Given the circumstances, there will be more intrigue surrounding the US retail sales data later today.

It’s not just one that is going to attract the attention of traders looking to price in the Fed outlook. But it is also one that could see USD/JPY get shoved lower by Japan, especially if the numbers miss on estimates.

A softer report would mean slowing consumption activity and bolsters the narrative for the Fed to cut sooner. In turn, that should keep the dollar pinned down and Tokyo officials might see that as another opportunity to step in again.

This article was written by Justin Low at www.forexlive.com.

Powell reaffirmed that a September rate cut is very much on the cards and that is helping traders to turn the page from the kneejerk reaction to the Trump rally shooting. 10-year yields in the US have now erased the jump from yesterday, falling to near 4.18%. Yields are down 4.8 bps on the day currently.

With yields threatening a further drop, this could weigh more on the dollar as well moving forward. A break lower towards the March low of 4.038% and the 4% mark in general will likely drag the greenback much lower despite the declines already in July.

If so, that will be a welcome relief for Japan as it should also pin back USD/JPY a little more.

The next key risk event to watch now will be the US retail sales data later in the day.

This article was written by Justin Low at www.forexlive.com.