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Retail Sales Add to Cooling Narrative; Pre-Markets Up

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Tuesday, June 18th, 2024

Aside from the A.I. trade, there’s another bullish aspect to this market. It’s bullish in a more relative way, not absolute: it’s that our economy has found its footing at higher-than-normal levels of inflation. And those levels are continuing downward, gradually, without (yet) descending into recession. Much of this credit goes to the Fed — one of the most second-guessed agencies of the federal government. It’s hard to argue with the results: by mid-2024 we were supposed to be smack-dab in the middle of an economic downturn, and we’re not.

Retail Sales are out this morning, and keep this narrative going. For the month of May, headline Retail Sales reached +0.1% — down from the +0.2% expected, but up 30 basis points (bps) month over month, from the downwardly revised -0.2% in April. Stripping out volatile monthly auto sales, this number fades to -0.1% — in-line with the downwardly revised previous month. Ex-autos and gas, +0.1% is the figure, 40 bps up from the downward revision to -0.3% in April.

The Control number — that which gets fed into other, more comprehensive economic data like PCE and GDP — came in at +0.4%, the strongest print since March’s +1.0%. It’s also way up from the downwardly revised -0.5% in April, but ultimately lighter than expected. That’s quite a bit of volatility overall; it’s also a lot of downward revisions to prior reports. Even year over year Retail Sales, which reached +2.3% in the quarter, is down from the +2.7% revision, which is down 30 bps from the previous print. These all continue the narrative of a cooling economy, if a tad less steady compared with other metrics of late.

Pre-market futures were already up modestly, and remain there. The Dow is up a bit to +34 points at this hour, the S&P 500 remains at +8 and the Nasdaq still +53 points. Should these trends stand for the session, it will be yet another closing high for both the Nasdaq and S&P. For sure it’s been a good first half of June. Bond yields are down a tad on the 2-year, to +4.714%, and up 10 bps on the 10-year, to +4.387%. Still inverted by 30-40 bps, as it has for a long time. The bullish equities market is even elbowing past what otherwise might be considered inconvenient bond data.

Industrial Production for May came in at +0.9%, more than double the estimate of +0.4% and well ahead of the original read last month 0.0%. Capacity Utilization ticked up to +78.7% from an expected +78.6%. The +78.4% originally reported for April is revised down to +78.2%, so it’s a bigger jump month over month.

After the opening bell, we’ll look for Business Inventories for May and a CBO Budget Forecast later this afternoon.

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