Rates Drop ~6bps on Retail Sales Miss

Weak retail sales fuel a bond rally. Swap rates declined 5-7bps today after retail sales were below estimates across all measures in May. Strong demand at a $13B auction of 20y Treasury notes contributed as well, with the long end of the curve falling ~2bps immediately after the results. Meanwhile, Nvidia overtook Microsoft as the most valuable company in the world after reaching a market capitalization of $3.34T. Nvidia rose over 3.60% to ~$136 per share.

May retail sales show consumer stress. Retail sales growth was below expectations across all measures in May, with headline sales growing 0.1% vs. 0.3% estimates on a month over month basis and core sales declining by 0.1% vs. 0.2% growth estimates. April figures were also downwardly revised to show declining sales across all measurements. The results were largely interpreted as showing cracks in US consumer strength amidst high rates.

Bank of Japan (BOJ) governor Ueda says July rate hike is in play. After the BOJ announced a significant reduction in future bond purchases at its policy meeting last week, BOJ governor Ueda suggested that a rate hike could follow in July. While he clarified that the “decision on bond-buying taper and interest rate hikes are two different things,” he said that strong “economic, price, and financial data” could lead to a hike. The BOJ suggested that elevated wages could support robust consumer spending, a boost in the fight against prolonged deflation. A hike is currently seen as 34% likely in July and is fully priced by October.