Five economic data reports were released at the same time on Thursday and the picture convincingly showed a healthy consumer and jobs market, with only modest weakening in manufacturing.
The main release was the July US retail sales report and it was up 1.0% compared to +0.3% expected. There was a modest 0.2 pp revision to the prior number but when you strip away the volatile autos, gasoline and home building numbers (the control group) it was up 0.3% compared to 0.1% expected.
The numbers were underscored by Walmart executives today who increased guidance and said “so far we are not experiencing a weaker consumer overall around the world,” including in early August.
The second report the market focused on was initial jobless claims, which showed fewer benefit filings at 227K compared to 235K expected.
Data on manufacturing was mixed with the Empire Fed slightly better than anticipated and the Philly Fed significantly worse.
Overall, the picture is of an economy that’s not tumbling into recession and doesn’t likely justify a 50 basis point Fed cut next month. The odds of that move are now down to 24% and the market is pricing in 94 bps of easing this year compared to 104 bps yesterday.
With that, traders piled back into carry trades and USD/JPY in particular:
USDJPY 10 mins
Traders were flushed out of USD/JPY carry trades at the start of the month on fears of swift Fed rate cuts but now there is a rapid re-think. It’s a similar story in the bond market with US 2s up 14.6 bps to 4.09%.