May Inflation and Retail Sales Will Vie with Trade Talks this Week

Jun 10, 2019
Automobiles lined up at Mexico Border crossing

Inflation Readings and Retail Sales Vie With Trade Talks

With the planned Mexican tariffs suspended on Friday night, risk-on is the mood of the day and that has bonds on the defensive as the week opens. Away from trade headlines, investors will receive first-tier data in the form of May inflation and retail sales.  CPI numbers Wednesday are expected to remain docile, and hence aid the Fed’s shift to an easing posture, while retail sales numbers on Friday are expected to show some improvement over April.  Finally, the disappointing May jobs report also allows the Fed to pivot to an easing posture as the June 19th FOMC meeting looms. While odds of a rate cut in June remain low, odds for the July 31st meeting have soared over 80%.

Treasury Curve Today Week Change
3 Month 2.27% -0.06%
6 Month 2.17% -0.12%
1 Year 2.01% -0.14%
2 Year 1.87% -0.02%
3 Year 1.84%  UNCH
5 Year 1.88% -0.01%
10 Year 2.12% +0.01%
30 Year 2.62% +0.06%
Short-Term Rates
Fed Funds 2.50%
Prime Rate 5.50%
3 Mo LIBOR 2.45%
6 Mo LIBOR 2.37%
12 Mo LIBOR 2.35%
Swap Rates
3 Year 1.878%
5 Year 1.905%
10 Year 2.100%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
June 10 JOLTS Job Openings Apr 7.496m 7.496m 7.488m
June 11 NFIB Small Biz Optimism May 101.8 101.9 103.5
June 11 PPI Final Demand (YoY) May 2.0% 2.0% 2.2%
June 12 CPI (YoY) May 1.9% 1.9% 2.0%
June 12 Core CPI (YoY) May 2.1% 2.1% 2.1%
June 13 Import Price Index (MoM) May -0.3% -0.2% 0.2%
June 14 Advance Retail Sales (MoM) May 0.7% 0.6% -0.2%
June 14 Retail Sales Control Group (MoM) May 0.4% 0.4% 0.0%
June 14 U. of Mich. Consumer Sentiment Jun P 98.0 98.0 100.0

calendar icon Top 5 Events for the Week

June 10 - 14, 2019

1.  Trade Developments – All Week
2.  May Inflation Readings – Tues./Wed.
3.  May Retail Sales – Friday
4.  June Univ. of Mich. Sentiment – Friday
5.  May NFIB Small Biz Optimism – Tuesday


1.  Trade Developments – All Week

With the Mexican tariffs suspended over the weekend, the week opens to a risk-on mood with stocks looking to trade higher and bond yields backing up some.  While stocks initially  traded lower early last week on the prospect that the 5% tariffs looked likely to be implemented, talk of delays later in the week boosted stocks. Stocks also got a boost Friday after the weak May jobs report that  pointed to a Fed likely to be cutting rates sooner rather than later. A weakening stock market in the wake of tariffs is probably part of the calculus in suspending the Mexican tariffs, and with the Friday night announcement stocks have the go-ahead to rally while bonds absorb some the risk-on mood. The bond selling looks to be modest with the 10-year down 12 ticks to yield 2.12%.


2.  May CPI Inflation Readings – Wednesday

After May’s disappointing jobs report, and the increase in odds that the Fed could cut rates as early as July, the May inflation readings on Wednesday will be viewed as confirmation that inflation pressures continue to remain modest at best and should not hinder a proposed rate cut.  Expectations are for overall CPI to increase 0.1% versus 0.3% in April as energy costs turned decidedly south during the month and dollar strength continued to depress import costs. The core rate (ex-food and energy) is expected to increase 0.2% versus a 0.1% gain in April.  On a year-over-year basis, CPI is expected to decrease 1/10th to 1.9% while core CPI YoY is expected to remain unchanged at 2.1%.  The Fed’s preferred inflation measure, core PCE, remains under 2% at 1.6%. The trend for PCE is to run 30bps below  CPI so with core CPI expected at 2.1% that implies core PCE increasing to 1.8% but still below the 2.0% target.


3.  May Retail Sales – Friday

Retail sales have been a real rollercoaster ride lately with March posting big gains following softer-than-expected results in January and February. After the robust March results, however, April disappointed again.  May retail sales are expected to show another upside pop with overall sales expected to increase 0.6% versus a dip of –0.2% in April. Sales ex-autos & gas are expected to be up 0.4% versus –0.2% in April indicating the advance in May is expected to be rather broad-based.  The Retail Sales Control Group (a direct GDP input) is expected to increase 0.4% versus unchanged in April. With two-thirds of the economy based on consumer consumption the retail sales figures always lead to adjustments to GDP estimates. Right now, the Bloomberg consensus for second quarter GDP is 2.0% while the Atlanta Fed’s GDPNow model is calling for a weaker 1.4%.


4.  Preliminary June U. of Michigan Consumer Sentiment – Friday

Recent consumer confidence readings—University of Michigan and Conference Board—have been increasing after the softness in the first quarter that followed the extreme market volatility at year-end. That rebound is expected to take a bit of a breather this month given the latest dust-ups over China and Mexican trade/tariff threats. The preliminary June read from the University of Michigan is expected to be 98.0 versus 100.0 in May. The high print was a 101.4 in March of 2018 when tax cut euphoria was running high. Inflation estimates are expected at 2.9% for the 1yr period and 2.6% for the 5-10yr horizon. The 5-10yr horizon average over the past year has been 2.5%. The Fed will want to see those expectation stabilize and not drift higher or lower by any great extent.


5. May NFIB Small Business Optimism — Tuesday

While the consumer confidence readings get more headlines and attention, the NFIB Small Business Optimism report should get love too. The optimism index soared last year off the tax cuts and deregulatory push by the Trump Administration. With the tariff/trade war headlines causing increased costs and uncertainty for businesses large and small this optimism reading has drifted south in recent months. The high reading was 108.8 back in August 2018 while expectations are for the May reading to be 101.9 versus 103.5 in April. If the optimism reading continues to head lower expect reduced hiring and investments down the road and that’s not a recipe for a healthy rebound in the labor market, nor GDP in general.


NFIB Small Business Confidence 


bar graph icon  Investment Yield Ranges Over Last Year


US TreasuriesFHLB Agency BulletsMortgage Backed SecuritiesMunicipalsUS Corporate - FinancialsUS Corporate - Financials 

Source: Bloomberg



Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research


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