Is the Iran War Hurting the US Economy? Markets Eye Retail Sales Data
Is the Iran War Hurting the US Economy? Markets Eye Retail Sales Data
By:Ilya Spivak
As markets struggle to make sense of the Iran war, US retail sales data may show it is already hurting consumers
- Markets shook but opted against panic as the US and Iran broke their ceasefire
- Traders appear to be leaving room for another policy U-turn before committing
- US retail sales data may show the Iran war is already hurt consumers in March
Financial markets appeared unsure of what to make of the breakdown in the ceasefire between the US and Iran just one day after exuberant financial markets celebrated it. Stocks finished a banner week with a push to record highs on Friday amid hopes for an end to the third Gulf War. Over the weekend, those hopes seemed to fizzle.
Iranian officials suddenly backpedaled on a pledge to open the Strait of Hormuz amid ongoing negotiations with the US. Two Indian ships came under fire as they tried to traverse the key waterway. The US responded with enforcement of its own blockade, capturing an Iranian tanker in the Gulf of Oman after it passed the Strait.
Markets shudder as the US and Iran break their ceasefire
This made for a familiar “war trade” dynamic at the weekly trading open. Crude oil prices surged. Futures contracts tracking US stock market index benchmarks and Treasury bonds dropped alongside gold prices and the US dollar advanced against its major peers.
Barely two weeks ago, such stage-setting might have preceded a long day of bloodletting. As it happened, momentum evaporated almost as quickly as it appeared. Prices hit the brakes just 90 minutes after the open, then drifted sideways for the remainder of the day.
For now, traders seem to have concluded that rapid-fire policy U-turns have been the only consistent feature of the Iran war so far. They seem to be allowing space for the narrative to recoil on its own before committing one way or another. S&P 500 futures trading volumes tellingly dropped to the lowest since April 6, the Easter Monday lull.
US retail sales: how much has the Iran war hurt consumers?
The appearance of high-value economic data might help to steer next steps. The US retail sales report is expected to show that receipts jumped 1.4% in March, more than double the 0.6% rise in February and the largest monthly increase in a year. Traders surely want to see if last month’s jump in energy prices crowded out spending elsewhere.
Household consumption – the indispensable engine of economic growth at 68% of gross domestic product (GDP) – appeared to weaken at the end of last year, contributing just 1.3 percentage points (ppt) to growth in the fourth quarter. That’s down from 1.68ppt in the second quarter and 2.34ppt in the third.
Meanwhile, US economic data outcomes have increasingly deteriorated relative to forecasts, according to analytics from Citigroup. If that sets the stage for disappointing retail sales data that hints the Iran war is tightening the screws on already defensive consumers, markets may face a more convincing risk-off push.
Ilya Spivak, tastylive head of global macro, has over 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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