U.S. Retail Sales, U.K. Inflation and Australian Jobs
Jul 17, 2023
June’s U.S. consumer price index (CPI) data triggered dramatic volatility across financial markets.
The headline year-on-year inflation rate slipped from 4% to 3%, undershooting forecasts calling for 3.1%. The core reading excluding food and energy—a focal point for Federal Reserve policy considering officials’ acute focus on the service sector–was similarly soft, coming in at 4.8% against projections of 5%.
The response from traders was unmistakable. Bond yields fell alongside the U.S. dollar while gold and the Japanese yen jumped upward. The policy path implied in Fed Funds futures flattened, with most of the adjustment happening beyond 2023. Markets seemed to conclude that—while Fed officials’ hawkish rhetoric in recent weeks probably makes a July rate hike inevitable—the likelihood of another one is slim, and the start of easing can begin as soon as March of next year.
This narrative defined price action until Friday’s explosively upbeat U.S. consumer confidence figures from the University of Michigan (UofM) crossed the wires. Not only did the headline sentiment gauge unexpectedly jump to the highest since September 2021—crushing forecasts by a wide margin—but the inflation expectations components of the data set registered higher than expected. Consumers see price growth at 3.4% in a year, against a Fed target of 2%.
Now, the Fed has entered its communications blackout period—when officials don’t comment publicly in the week preceding a policy announcement—and the data docket has thinned out, leaving markets with relatively little to go on until the Federal Open Market Committee (FOMC) gathering next week. That might imbue what little event risk there is with greater potency, as well as leave more room for investors to fine-tune positioning without disruption from the economic calendar.
These are the releases that markets are likely to prioritize as they search for direction:
Receipts are seen rising 0.5% in June, marking a pickup from the 0.3% recorded in the prior month. U.S. economic data is skewed toward outperforming relative to baseline forecasts by the biggest margin since March 2021, according to data Citigroup. This along with the dramatic pop in the UofM consumer confidence gauge seems to open the door for an upside surprise, which may extend Friday’s retracement of post-CPI moves. That is, it may encourage yields and dollar higher while gold and the yen backpedal.
Headline inflation in the U.K. is expected to pull back from 8.7% to 8.2% in June, the lowest since March 2022. Price growth data outcomes have been cooling relative to forecasts recently, which may set the stage for a miss. That might cool Bank of England (BOE) rate hike expectations somewhat, weighing on the British pound. As it stands, markets are pricing in a full percentage point in further tightening by year-end, bringing the target interest rate from 5% to 6%.
June’s labor-market figures are expected to show a slowdown in hiring, with the economy adding a net 15,000 jobs, down from the 75,900 increase in the prior month. The unemployment rate is seen holding steady at 3.6%, a hair above the record low at 3.4% established last year in November. A stronger-than-anticipated outcome echoing recently upbeat data flow might pull forward bets on another Reserve Bank of Australia (RBA) rate hike, lifting the Aussie dollar. Markets are currently pricing in one 25 basis points increase at either the November or December policy meeting, with standstill until then.
Ilya Spivak, tastylive head of global macro, has 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
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.