Retail Sales Show Strength While Swap Rates Fall 4-9 Basis Points

Swap rates fall despite strong retail sales. Rates rose by ~7bps immediately after this morning’s retail sales figures, which were significantly higher than expected across all measures. However, rates fell ~6bps from their session highs and closed 4-9bps lower across a bull flattening curve. The 2y Treasury yield is now just above 4.41% after touching over 5% in late April, while the belly of the curve sits between 4.07% – 4.20%. Meanwhile, the KRE banking ETF rallied 4.57% as Morgan Stanley and Bank of America headlined positive earnings results.

Retail sales growth accelerates. June retail sales growth surprised across measurements, an encouraging sign of continued consumer strength. Retail sales remained steady vs. an expected decline of 0.3% on a headline basis, while last month’s results were upwardly revised. On a core basis, sales grew 0.4% vs. 0.1% expectations (a 3-month high) and on a super core basis, sales grew 0.8% vs 0.2% expectations (highest since January 2023). Importantly, control group sales that feed into GDP grew 0.9% vs 0.2% estimates.

Morgan Stanley and Bank of America earnings results largely exceed expectations. Morgan Stanley reported Q2 profits and revenue that topped estimates, with the former surging over 41% from the year earlier to $3.08B. A rebound in trading and investment banking supported the increase, as equity trading revenue rose 18%, fixed income trading revenue climbed 16%, and investment banking revenue soared by over 51%. Meanwhile, Bank of America shares rallied by 5.35% after they announced an optimistic Q4 NII projection of $14.5B (versus $13.86B in Q2).  The bank also reported stronger than expected revenue and profits in Q2.