Rates Rise After Retail Sales Beat

Bonds sell-off as retail sales numbers show continued strength. A strong retail sales figure released this morning paved the way for rates to rise throughout the session. While  rates and stocks have generally had an inverse relationship as of late, the S&P 500 and NASDAQ indices were able to rally as investors continued to subscribe to the “goldilocks” scenario where inflation decelerates without a serious recession. In fact, stocks have been fairly resilient amid this latest sell-off, the NASDAQ sitting 15% higher YTD while the S&P is up ~8%.

Retail sales massively exceed expectations. January’s advance retail sales data came in hot today with nearly every category seeing a jump in sales following a weak December print. The largest increase was in the food services segment, which increased 7.2% vs. December, followed by vehicles and parts which increased 5.9% overall and furniture which increased 4.4%. Of particular note was the 17.5% increase in department store spending during the usually slow post-holiday season. This is yet another inflationary data point in recent weeks, following strong payrolls figures in January and this week’s hot CPI print. Together, they provide further support for the hawkish Fed members.

Day ahead. PPI and building permit data (8:30 AM) will highlight a data-heavy session that also includes jobless claims, housing, and Philadelphia Fed manufacturing reports. Fed commentary will be mostly backloaded, with James Bullard (hawkish non-voter), Loretta Mester (hawkish non-voter), and Lisa Cook (dovish voter) set to speak in the afternoon.