Friday, July 15, 2016

Gains were broad-based

U.S retail sales for June beat consensus by a “country mile” (+0.6% headline, core +0.7%), further proof of how strong the U.S consumer strength has been in Q2. In Canada, the domestic consumer is painting a different picture as Canadian factory sales fell for a third consecutive month in May, dropping -1% on lower car and energy sales.
U.S details:
Foodservice sales climbed a seasonally adjusted +0.6% from May, with growth +0.7% ex-autos vehicles and gasoline.
Gains were broad-based, with only clothing stores, restaurants and bars showing a slowdown from the previous month. The only blackspot in today’s report was May’s overall growth being revised down to +0.2% from the initially reported +0.5%.
Nevertheless, this morning’s stellar print would suggest a significant pickup for consumer spending after a lacklustre Q1.
Will today’s report change fixed income dealers thinking on the Fed’s next move higher for rates?
A key measure of U.S. inflation rose last month for the fourth straight month, the latest indication that the effects of low energy prices and a strong dollar are fading.
The CPI increased a seasonally adjusted +0.2% in June (It climbed +0.2% in May and +0.4% in April). Ex-food and energy, consumer prices also rose +0.2%.
Before the release, Dec fed fund futures were pricing in a +34% chance of a rate hike, the odd’s have now rallied to +40% for December and +18% for September.

Canada details:
Manufacturing sales volume fell a whopping -2.1% on the disappointing headline print (-1.0%). A weaker report was probably not too much of a surprise given last week’s worse-than-anticipated trade report.
Expect the market to strongly question the Bank of Canada’s (BoC) viewpoint that Canada’s export recovery remains on track and that sales abroad will be supported by solid U.S demand and past depreciation of the Canadian dollar.
A plus weighing on the factory sales results were one-time factors such as auto-supply disruptions in Japan due to an earthquake and the Alberta wildfires.
Nevertheless, the BoC’s view of non-energy exports is likely to be put to the test with June’s factory-sales report.