Inflation Numbers and Retail Sales Vie With Trade Talks & Brexit Vote This Week

Mar 11, 2019
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Trade, Inflation and Retail Sales

This week is full of first-tier economic data but they run the risk of being overshadowed by US/China trade developments and a Brexit vote tomorrow.  On Tuesday, the UK Parliament will vote once again on the May Brexit plan with improving odds it may pass—if for no other reason than the March 29th deadline is fast approaching.  An affirmative vote will be a risk-on event but if the plan is defeated once again it will engender more flight-to-safety trades into Treasuries. Away from the geopolitical forces, January retail sales were just released and were better than expected but December’s woeful numbers were revised even lower. Meanwhile, the February CPI report will arrive tomorrow with fairly docile inflation readings expected.  January durable goods orders will be out Wednesday with mediocre numbers expected. Finally on Friday, we get the preliminary read on consumer sentiment from the University of Michigan survey with modest back-to-back improvement in sentiment expected.


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


calendar icon Top 5 Events for the Week

MAR 11 - 15, 2019

1.  China Trade Developments & Brexit –All Week

2.  February CPI –Tuesday

3.  January Retail Sales –Monday

4.  January Durable Goods Orders—Wednesday

5.  March Univ. of Michigan  Sentiment—Friday

 

 

1.  China Trade Developments & Brexit Vote — All Week

Trade negotiations with China continue and the Trump administration would dearly love to get a win in the books, and that’s why the market is anticipating a deal of some sort will be announced soon. The question remains will it be a substantive deal, or one that is more show. While a substantive deal would be a clear risk-on event, even in the case of a more limited deal it should push yields higher but not a push that leads to a lasting upward trend in yields.  Meanwhile, the UK will have another vote tomorrow—assuming it’s not delayed—on Theresa May’s Brexit plan with odds slightly improving that it passes, if only because the March 29th deadline is fast approaching.  An approved Brexit plan would be another risk-on event so Treasuries have a possible double-dose of geo-political events to navigate. Of course, if there is no deal in both cases it will precipitate a flight-to-safety trade into Treasuries.

 

2.  February CPI  —Tuesday

While the labor market has continued to impress, at least from a wage gain perspective, inflation readings have failed to show the expected Phillips Curve bump to inflation. It’s with that backdrop that the February CPI release tomorrow will be awaited as confirmation that inflation pressures are NOT building despite nice wage gain numbers of late.  Expectations are for the overall reading to increase 0.2% versus unchanged in January as energy costs rebounded some. The core rate (ex-food and energy) is expected to increase 0.2% for the fifth straight month.  On a year-over-year basis, CPI is expected to follow a 3/10ths drop in January by remaining unchanged at 1.6%. Core CPI YoY is expected to remain at 2.2% for the fourth straight month.  The Fed’s preferred inflation measure, core PCE, remains slightly under 2% at 1.94%. The trend for PCE is to run 30bps below  CPI so with core CPI unchanged at 2.2% that implies core PCE also staying at 1.9%. 

 

3.  January Retail Sales-Monday

If you thought we received a retail sales report recently, you are correct. December retail sales were delayed nearly a month due to the government shutdown but following closely on its heels the January report is already out this morning. The bottom line is that January numbers beat expectations but the awful December numbers were even worse than previously believed. The all-important control group reading (which is a direct GDP input) beat at 1.1% versus 0.6% expected but December’s horrible –1.7% plunge was made even worse with a –2.3% revision (the second worst on record).  Overall sales increased 0.2% versus an unchanged expectation while December was revised from –1.2% to –1.6%. Sales ex-autos & gas easily at 1.2% easily beat the 0.6% expectation, but again December was revised down from –1.4% to –1.6%. The rebound in the control group and sales ex-autos and gas could provide a little boost to first quarter GDP estimates. Presently, the Bloomberg consensus GDP estimate is 2.0% while the Atlanta Fed’s GDPNow model is calling for a lower 0.5% GDP. 

 

4.  January Durable Goods Orders—Thursday

This is another case where the December report, delayed by the shutdown, was recently released so the January report is following closely that report. The headline orders number is expected to be down -0.5% versus 1.2% in December while durables ex-transportation are expected to be up 0.1%, same as the prior month. Shipments of goods less defense and air— a proxy for business investment—are expected to be unchanged from December.

 

5.  Preliminary March University of Michigan Consumer Sentiment —Friday

Recent consumer confidence readings—University of Michigan and Conference Board—took hits due to the market volatility in the fourth quarter but with the rebound in stocks in January and February, and a solid labor market, the preliminary March read from the University of Michigan is expected to show small pop. Expectations are for a 95.6 read versus 93.8 in February. The high print was a 101.4 in March of 2018 when tax cut euphoria was running high. The modest back-to-back rebound in confidence should keep the consumer spending enough to maintain first quarter GDP estimates at their modest 2.0% estimates. Inflation estimates from February of 2.3% short-term and 2.6% long-term are not expected  to change. They had drifted lower in February so the Fed will be looking for stability here. 

 

U of M Consumer Sentiment

 

 

 


arrow up icon 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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