US Treasurys Rise on Weak Economic Data

A few key economic indicators were released today, led by the month over month US Retail Sales data which was reported flat for July, falling well short of analysts’ expectation of +0.4%.  Excluding auto sales, Retail Sales produced a decline of 0.3%, which matches the biggest monthly drop since the beginning of the year.  In addition to Retail Sales, US Producer Prices unexpectedly fell 0.4% compared to the predicted increase of 0.1%.  The decrease in PPI is the first since March and the largest since September 2015.  The new data prompted equity markets to retreat from their record highs while U.S. Treasury prices increased/yields dropped.  Finally, University of Michigan sentiment also missed forecast for August preliminary estimates, coming out at 90.4 vs. expectations at 91.5.  Overall, the weak than expected data today should diminish the lingering hopes for a FOMC rate hike come September.

Economic data released abroad, showed mixed results, with Germany seemingly the lone beacon of economic hope within Europe.  Germany posted 0.4% growth for Q2, doubling the projection of analysts.  The German data came as welcome news, somewhat offsetting the previously reported flat Q2 GDP for Italy, 0.2% less than forecast.  In Asia, China failed to exceed estimates in three significant data releases – retail sales, industrial production, and fixed-asset investments.  Additionally, China saw its credit growth rise the smallest amount in two years, which when coupled with the other misses, signals a tough road ahead keeping up with their 6.5%+ growth target.         

Both swap rates and Treasury yields are down 5-8 bps on the day, with the yield on the 10 year Treasury note falling the most it has in six weeks to below 1.50%.  All three major U.S. stock indexes are trading marginally below even while Brent and WTI crude prices are up over 1%.