April Retail Sales and Fed Speakers in the Spotlight this Week

May 14, 2018
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April Retail Sales and Fed Speakers Highlight the Week

After last week’s focus on inflation and the appetite for new Treasury supply, the attention will shift to the impact of higher rates on the real economy. April Retail Sales tomorrow will be the headline release. A flat to slightly lower print versus March is expected; nevertheless, it will be an interesting gauge between the forces of tax cuts and a hot labor market versus higher rates and sluggish wage growth. To date, investors have been willing to excuse away first-quarter weakness as a seasonal affair but  April readings that continue to show stagnation may raise some concern. Meantime, Fed officials will be busy with a total of nine speakers dotting the rubber chicken circuit. Out of that covey, some are likely to discuss the recent CPI report and its implications on monetary policy.


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


Top Events of the Week Top 5 Events for the Week

MAY 14 – MAY 18,  2018

1. April Retail Sales — Tuesday
2. Fed Speakers — All Week
3. April Housing Starts & Permits — Wednesday
4. Industrial Production — Thursday
5. Leading Index — Thursday

 

 

1.  April Retail Sales – Tuesday

The April Retail Sales Report will inform as to whether tax cuts and a strong labor market are overriding sluggish wage growth and higher interest rates as it pertains to consumer consumption. While investors are willing to write-off some first quarter weakness as seasonally-inspired, continued weakness into April may begin to garner some concern.  Overall sales are expected up 0.3% versus 0.6% in March, while sales ex-autos and gas are expected up 0.4% versus 0.3% the prior month.  More importantly, the control group –sales less autos, gas, and building materials– which is a direct input to GDP is expected match March’s 0.4% gain.

 

2.  Fed Speakers — All Week 

After the weaker-than-expected CPI report last week, the market will be attuned to any commentary from a total of seven Fed officials that will take to podiums around the globe. Another two (Clarida and Bowman) will be testifying in front of the Senate Banking Committee as part of their confirmation process. While we expect most of the Fed officials to downplay weakness in a single inflation report, investors should be on the lookout for even the slightest hint of hedging on the planned quarterly hikes in 2018 scenario.

 

3.  April Housing Starts & Permits — Wednesday

Housing starts for April are expected to decrease -0.7% month-over-month with an annualized start number of 1.310 million versus 1.319 million. The average over the past year has been 1.228 million so an above-trend print is expected despite the month-over-month decrease off a strong March result. Permits, which aren’t subject to the vagaries of weather which can impact the starts number, are expected to decrease slightly to 1.350 million annualized versus 1.379 million the prior month. The average over the past year has been 1.283 million, so like the housing starts number, an above-average print is expected despite a dip versus the prior month. With higher interest rates every housing release will be viewed for potential slowdowns. The expected decreases in April versus the prior month are more to do with outsized gains in March rather than higher rates slowing demand, at least for now.

 

Housing Starts & Permits

 

4.  Industrial Production and Capacity Utilization — Thursday

Expectations are for April industrial production to increase 0.6% in April versus 0.5% the prior month.   The average over the past year has been 0.36 so an above-trend print is expected. Stripping out the volatile utility component manufacturing is expected to be up 0.5% versus 0.1% the prior month.  The average over the past year has been 0.3% so an above-average print is expected. Finally, capacity utilization is expected to be 78.4% versus 78.0% the prior month, indicating excess capacity is slowly being taken up.

 

5.  Leading Index — Thursday 

The Leading Index is a compilation of several economic variables that tend to move before changes in the overall economy.  Expectations are for the first month-over-month increase this year with a 0.4% increase versus 0.3% the prior month. The peak reading over the last year was 1.3% in October while 0.8% was the next highest reading reached in January.

 

 

 


Technicals Investment Yield Ranges Over Last Year

 

US Treasuries

FHLB Agency Bullets

Mortgage Backed Securities 

Municipals

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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