Daily Market Color

Robust Economic Data Leads Treasury Yields, Dollar Higher

Investors received a flurry of meaningful economic data today, beginning with a robust July retail sales figure.  Last month US retailers overall recorded their strongest growth of the year, as sales surged 0.6% (+0.4% expected) during July, a 0.3% improvement from the previous month’s upwardly revised level.  Retail gains were broad-based, with 10 of the 13 major retail sectors displaying advances.  The largest increases were observed at non-store retailers (+1.3%) where Amazon’s Prime Day boosted Internet sales, in addition to motor vehicles, building materials and garden equipment purchases, all of which rose 1.2%.  Excluding cars and gasoline, retail sales rose 0.5%.  Over the past year, overall retail sales have increased 4.2%.  In a separate report, US import prices climbed 0.1% last month, matching expectations and higher than the monthly declines reported in May and June.  The largest increases in prices were recorded in food (+0.6%) and petroleum products (+0.7%).  Compared to a year earlier, overall import prices rose 1.5% through July.  Another report this morning displayed US business inventories growing at their largest clip of the year during June at +0.5%.  The Commerce Department reported the highest build up in the motor vehicle (+0.7%) and retail (+0.5%) sectors.



US Treasurys extended yesterday’s selloff following the retail sales data this morning.  Yields/swap rates are currently up 2-6 bps across the curve, with the yield on the 10-year note up 5 bps to 2.27%.  New York Fed President William Dudley also contributed to the hawkish sentiment in an interview with the Associate Press yesterday afternoon in which he stated his expectation for an additional rate hike this year and confirmed the potential for a balance sheet normalization plan to be described in more detail at the September FOMC meeting.  Further insights into the monetary policy views of other Fed members can be expected tomorrow with the release of the minutes from the July FOMC meeting due out at 2pm Eastern.  In equity markets, all three major US stock indices held close to unchanged for the day, weighed down by a sharp decline in retail shares, despite the strong July retail data just released.  Earnings reports from Advance Auto Parts and Dick’s Sporting Goods, two companies thought to be more “Amazon-proof” than other retailers, revealed weaker-than-expected quarterly results, prompting both companies’ shares to drop more than 20% in value during today’s trading session.  The US dollar posted a second consecutive day of gains, up 0.4% against major currencies.  In commodities, gold futures fell 0.7% while crude oil edged 0.1% higher for the trading session.


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