Will Stocks Roll Over as Soggy US Retail Sales Threaten Growth?

Stocks may swoon if retail sales data shows tariffs are already hurting US economic growth

• Markets convulse amid rumors Trump might fire Fed Chair Powell
• US PPI data echoes growing concerns about emerging tariff impact
• All eyes now on US retail sales figures for a check on recession risk

Financial markets seesawed as news outlets lit up with rumors warning that US President Donald Trump is getting ready to fire Federal Reserve Chair Jerome Powell, only to be quickly quashed by the chief executive himself. A letter was reportedly drafted to sack the central bank chief, and the idea floated to members of Congress.

The US dollar plunged alongside stocks and Treasury bonds, echoing the “sell America” price action on display in early April when the White House unveiled its so-called “reciprocal” tariffs scheme. As with that episode however, signs of acute market panic spurred the President into a prompt reversal. Stocks, bonds and the greenback bounced on cue.

Speaking with reporters a mere hour after the rumors began to swirl, Trump said in response to a direct question about whether Powell will be fired that he is “not planning on doing anything,” adding that “we get to make a change in 8 months.” He would not commit to ruling anything out but said that dismissing the Fed Chair is “highly unlikely”.

US PPI data echoes market concerns about emerging tariff impact

Earlier in the day, producer price index (PPI) data showed that wholesale inflation slowed slightly more than expected in June. The headline measure rose 2.3% year-on-year, undershooting forecasts calling for 2.5%. The core gauge excluding volatile food and energy prices ticked down to 2.6% versus 2.7% expected.

While these readings marked nine- and eleven-month lows respectively, the reports internals echoed signs of emerging tariff-linked inflation appearing in consumer price index (CPI) figures earlier this week. Wholesale goods prices rose 0.3% from the prior month, the most since February.

Costs fell 0.1% on the services side, reflecting a steep 4.1% month-on-month drop in traveler accommodation and a 2.7% decline in airline passenger costs. Wholesalers’ margins idled overall, but the squeeze for intermediate demand continued for a third consecutive month after an eye-watering 2% monthly drop in April, the biggest in 12 years.

Taken together, this seems to reflect belt-tightening among service providers alongside ongoing efforts by firms at the early stages of the US supply chain to shield consumers and final distributors from tariff-related input costs. Their appetite to bite the bullet may be waning however, rising goods prices in PPI and CPI appear to show.

All eyes on US retail sales data for a check on recession risk

The spotlight now turns to US retail sales data. A modest rise of 0.1% in June is expected. While that would amount to a modest improvement from the 0.9% decline in May, the absence of a spirited push to front-run incoming tariff hikes slated for August would be glaring, especially as goods inflation linked to the new levies starts to surface.

Consumption is the overwhelmingly dominant driver of US economic growth, accounting for close to 68% of gross domestic product (GDP). Tariff-induced anomalies in imports and inventories aside, first-quarter growth data showed a worryingly small contribution on this front, coming in at the weakest in almost two years.

Price action across major markets in the first half of the year hints that the markets are worried about an economic downturn and want the Fed to cut interest rates accordingly, but this week’s inflation data suggests this is a distant prospect. Soft retail sales data may amplify concerns, hurting stocks and lifting the dollar on haven demand.

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

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