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The May US retail sales report points to further signs of fatigue for the US consumer, with headline sales rising by a meagre 0.1% MoM, up from a downwardly revised 0.2% decline in the prior month.
While the all-important control group measure, which feeds into the GDP release, was somewhat more optimistic, rising 0.4% MoM, and all metrics were within the forecast range, this release is a further sign that the ‘US exceptionalism’ narrative has likely run its course.
Nevertheless, implications in terms of Fed policy, and long-term market impact, are likely relatively small.
Policymakers, as outlined by Chair Powell last week, continue to seek confidence in inflation returning to target before delivering the first rate cut, with only “unexpected” labour market weakness likely to catalyse the start of the normalisation process before said confidence is obtained.
Consequently, the PCE report on 28th June stands as the next significant risk event for markets to navigate, though a September cut remains my base case, so long as inflation continues its – albeit bumpy – glide back towards 2%.
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