Intraday Market Thoughts

Fear Crushed by Retail Sales & Round 1

by Adam Button
Jan 16, 2020 18:31

The much anticipated US retail sales report exceeded expectations for December and helped bolster risk appetite mainly for US indices (not European), especially as the US & China formalised round 1 of the trade deal. For 2019, US retail sales rose 3.6%, down from 5.0% in 2018. More on this below.   Despite growing expectations for BoE rate cut later this month, GBP is the strongest currency of the day. A new trade action/adjustment has been issued to Premium subscribers.

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The phase one US-China trade deal inspired a mild 'sell the fact' type trade but the market largely ignored it. The details of massive pledged purchases of US goods and services had leaked and none of the details were surprising.

US Consumers' Holiday Push

The "Control Group" retail sales series, mostly watched for economists as it excludes food services, car dealers and building materials to give a more accurate sense of demand, rose 0.5% vs exp 0.4%. The overall report was a vital positive surorise after retail giants Target, JC Penney and Koh's reported weak sales and dire guidance.

The "Dept Store vs Consumers" argument shall remain for the remainder of the year. After all, Target is a company whose share price had doubled since January 2019, and was expected to report sales growth upwards of 4%. Company shares fell 7% but the bigger concern is that the US consumer isn't as healthy as believed.

The Beige Book also looked at the consumer and said that overall sales were solid but regional commentary showed a mixed picture. Cleveland, KC and Dallas regions were upbeat but New York and St Louis were more pessimistic.

A bigger question is whether that and a 2% growth outlook for this year justifies the elevated mood in markets. The Beige Book survey was mostly after the phase one handshake deal but there weren't any clear signs of an improvement in the mood. Further reason for concern came from aluminum giant Alcoa. In October the company predicted demand growth in 2020 “would come roaring back” after a decline in 2019 but now forecasts just a 1.4-2.4% rise this year. The company is a decent bellwether for industrial sentiment.


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