CPI and Retail Sales will Highlight the Holiday-Shortened Week

Nov 13, 2018
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Retail Sales and CPI for October Highlight the Week

The holiday-shortened week has a couple of first-tier economic releases that will be a focus along with Fed Chair Jerome Powell speaking on the economy Wednesday.  October Retail Sales (Thursday) and CPI (Wednesday) will give us a gauge as to the health of the all-important consumer with expectations of a solid month of sales while  October CPI will give us a look at whether higher wholesale prices are being passed along to the retail level. The October PPI release from last Friday clearly showed that higher trade expenses (i.e., tariffs) are starting to show themselves in input costs and it will be key to see how much those costs, if any, get passed down to the consumer. Expectations are for core CPI to remain at 2.2% which implies core PCE will remain just under 2.00%.


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


Top Events of the Week Top 5 Events for the Week

NOV 13 - 16,  2018

1.  October Retail Sales — Thursday
2.  October CPI — Wednesday
3.  Fed Speak — Wednesday/Thursday
4.  October Real Average Hourly Earnings — Wednesday 
5.  November Philly Fed Business Outlook — Friday
 

 

1.  October Retail Sales — Thursday

The October Retail Sales Report is due Thursday and expectations are for most key metrics to beat September’s lackluster readings while the all-important Control Group reading (which is a direct GDP input) is expected to post a solid 0.4% gain versus 0.5% in September. Overall sales are expected up 0.5% versus 0.1% in September while sales ex-autos & gas are expected up 0.4% versus 0.0% in September. The expected bounce in most readings versus September is due, in part, to hurricane impacted areas in September but the strong back-to-back reading in the control group should keep fourth quarter GDP estimates in line. The Bloomberg consensus estimate is for a GDP gain of 2.7% as consumer consumption eases off the 4.0% third quarter splurge to a more moderate 2.8% gain.

 

2.  October CPI — Wednesday

After last Friday’s October PPI reading came in higher than most expectations, and clearly showed the impact of tariffs on input costs, the October CPI will be closely watched for any pass-through to the consumer level. To date, increases in PPI have largely been absorbed by producers with little in the way of pass-through to consumers in the form of higher retail costs. Expectations are for October CPI to be up 0.3% versus a 0.1% gain in September.  The core rate (ex-food and energy) is also expected to increase 0.2% versus 0.1% in September.  On a year-over-year basis overall CPI is forecast to increase 2/10ths to 2.5% from September’s 2.3%, while core CPI YoY is expected to remain unchanged at 2.2%. While the YoY measures are above the Fed’s stated 2% benchmark the Fed’s preferred inflation measure, core PCE, remains slightly under 2% at 1.96% with the trend being to trail core CPI by 30bps. Thus, if the core CPI expectation of 2.2% is met, that implies core PCE should continue to stay around, or just under 2%, indicating inflation pressures remain under control.

 

CPI Yoy vs Core CPI Yoy

 

3.  Fed Speak — Wednesday/Thursday

There are a number of Fed members speaking this week but the market will be focused on tomorrow’s economic address by Fed Chair Jay Powell at a Dallas Fed event. Given the mundane and mostly unchanged FOMC statement from last week the market will be attuned to the Chair’s characterization of the economy and his confidence in the outlook given some gathering concerns with housing activity and global growth. The address is scheduled for 6pm EST so market reaction may come on Thursday. If he expresses strong confidence and little concern it will continue to pressure the short-end as rate hikes in the first and second quarter of 2019 become more likely. The longer-end, on the other hand, is likely to rally if the market perceives the Fed as possibly venturing into policy-error territory.

 

4.  Real Average Hourly Earnings for October — Wednesday

This week the October CPI number should tell us if higher input costs are being passed  through, in part, to the consumer or whether those higher costs are being largely absorbed by producers in the form of tighter profit margins. Another report this week will give us a view of the consumer’s ability to absorb higher costs at the retail level. That report is the year-over-year Real Average Hourly Earnings for October which is expected to report a gain of 0.5% which will indicate the consumer continues to see only modest wage  gains after inflation such that higher costs would seem to act as a constraint on additional consumer spending.

 

5.  November Philly Fed Business Outlook — Friday

Expectations are for the November Philly Fed Business Outlook Survey to print a 20.0 reading versus  22.2 in October.   The average over the past year has been 23.6 so a below trend print is expected and a sequential decline as well. While the expected decline is modest it could signal some creeping concern on the part of the business community over the advancing trade tariffs and the gathering global slowdown in Europe and in China. With the housing sector slipping of late owing to higher rates and modest wage gains, a  slippage in business outlook could be another possible warning sign for the Fed and its rate hiking campaign.

 

 

 


Technicals Investment Yield Ranges Over Last Year

 

US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg

 

 

 


 

Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

 

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