June Retail Sales & Housing Starts Vie With the Geopolitical for Market Attention

Jul 16, 2018
The Presidential Palace Helsink Finland

Retail Sales and Housing Starts

This week trade and geopolitical concerns will once again top headlines but when there is a lull in those areas some economic releases will provide fodder on a slow summer week.  The most important of these releases is already out with Retail Sales for June mostly matching expectations except for the Control Group numbers that were unchanged versus 0.4% expected. Upward revisions to May offset much of the June miss such that 2nd quarter GDP estimates are not likely to be affected. What is concerning is the series is not inflation-adjusted so with last week’s CPI bump it does point to some slowing in inflation-adjusted sales. Other items this week will be June Housing Starts and Permits (Wed.), Industrial Production (Tues.) and the Fed’s Beige Book (Wed.). 


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


Top Events of the Week Top 5 Events for the Week

JULY 16–20,  2018

1.  Retail Sales — Monday
2.  Trade War Developments—All Week
3.  Housing Starts & Permits—Wednesday
4.  Industrial Production— Tuesday 
5.  Fed’s Beige Book — Wednesday

 

 

1.  June Retail Sales—Monday

The June Retail Sales Report is out and while the numbers mostly met expectations the Control Group reading (which is a direct GDP input) was unchanged versus a  gain of 0.4% expected. Offsetting some of that weakness was a nice upward revision in May for all categories such that any June miss is mostly offset.  The rub, however, is that this release is reported in nominal figures that are not inflation-adjusted. Thus, any uptick in the numbers has to be considered in light of inflation and with the June CPI from last week showing a decent bump in prices, retail sales, if inflation-adjusted, are probably showing only modest gains of late. That’s an issue to watch over the third quarter as the expected ramp in inflation-adjusted consumer spending off tax cuts and increased wages doesn’t seem to be occurring with any real gusto and that may moderate second-half GDP expectations. 

 

2.  Trade War Developments  —All Week

With tariffs against China in place and threats of further increases the tough trade talk has moved from negotiating position to outright action and the tit-for-tat retaliatory measures are sure to continue. China has promised to follow through on retaliatory tariffs and the EU is looking to respond in kind if the Trump administration follows through on threatened auto import tariffs. U.S. companies in China are already reporting heightened scrutiny of inbound shipments and lengthened quarantines. These stealth actions of the trade war carry a tangible impact. It’s this type of behind-the-headline actions we suspect will only increase. The rhetoric and tit-for-tat actions are also likely to continue and that, combined with the stealth actions, will impact global growth, but more importantly  it will increase uncertainty and hurt business confidence. All this is likely beneficial to Treasury prices as flight-to-safety trades increase.

 

3.  June Housing Starts & Permits —Wednesday

Housing starts for June are expected to decrease 2.2% month-over-month with an annualized starts number of 1.320 million versus 1.350 million in May. The average over the past year has been 1.259 million so an above-trend starts number is expected on the annual average but a sequential downturn compared to May. Permits, which aren’t subject to the vagaries of weather which can impact the starts number, are expected to decrease slightly to 1.330 million annualized versus 1.301 million the prior month. The average over the past year has been 1.320 million, so an above average print is expected and against the prior month. In summary, the housing numbers this week are expected to show, for the most part, some moderation versus prior month activity but still above annual averages. 

 

New Home Starts and Building Permits

 

4.  Industrial Production—Tuesday

Expectations are for June industrial production to increase 0.5% in June versus -0.1% the prior month.   The average over the past year has been 0.29 so an above-trend print is expected. Stripping out the volatile utility component manufacturing is expected to be up 0.7% versus -0.7% the prior month.  The average over the past year has been 0.1% so an above-average print is expected. Finally, capacity utilization is expected to be 78.2% versus 77.9% the prior month, indicating excess capacity is slowly being taken up.

 

5.  Fed’s Beige Book —Wednesday

This week is fairly quiet in respect to Fed speakers but on Wednesday the Beige Book will be released which will form the basis of the economic outlook presented at the August 1st FOMC meeting. The attention is likely to be focused on whether anecdotal reports of shortages, cost increases, etc., are starting to become apparent from trade war rhetoric and tit-for-tat actions.

 

 

 


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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