September Retail Sales Highlights the Potential for a Soft Landing

Rates rise on strong economic data. Swap rates rose across a bear steepening curve today as robust retail sales and lower-than-expected jobless claims created doubt about the Fed’s future aggression with rate cuts. Jobless claims totaled 241k in the week that ended October 12 versus the 259k forecast. The data drove an immediate ~6bp spike at the short end of the curve before rates grinding lower into the session close. Meanwhile, the long end of the curve climbed 8-9bps on elevated hopes for a soft landing.  

Retail sales: another sign of US economic strength. Retail sales grew more than expected across all measures in September while greatly exceeding last month’s levels. On a core basis, retail sales grew 0.5% on the month versus 0.1% estimates and August’s 0.2% print. On a headline basis, retail sales advanced 0.4% versus 0.3% expectations and last month’s 0.1%. Control-group retail sales, which feeds directly into GDP, rose 0.7% vs. 0.3% expectations. The results highlighted economic resilience and elevated consumer spending.

European Central Bank (ECB) cuts policy rates by 25bps. The ECB trimmed their deposit facility rate to 3.25% today, the third 25bp rate cut of the cycle after commencing in June. ECB President Christine Lagarde cited slowing inflationary pressures and declining economic growth as driving factors in the decision, with the former most recently falling to 1.7% in September. Lagarde described economic activity as “a bit lower than we anticipated” while the ECB recently cut its 2024 GDP forecast to 0.8% from 0.9%. She added that a 50bp rate reduction was never discussed, especially because December provides another “opportunity” to ease policy.