Inflation Down Retail UP

Some very good news on US Inflation Expectations. For the year ahead declining to 3.5% in July.

This is a significant drop from 3.8%, and finally is exactly what the Federal Reserve wants to be seeing.

US Inflation Expectations

In the overall sea of data however, it is not yet enough for the Fed to ease off on the tightening bias. It does however give pause for thought along those lines.

The worry, as I keep pointing out and some other major commentators are starting to mention, is that in the background further up the pipeline there are real rekindling’s of energy and food inflation. Until this bulge has passed through to the consumer we will not be sure where inflation truly sits in a sustainable fashion.

For now, the Fed will stay a rather stern steward.

In coming hours we get US Retail Sales.

Which should be a positive. I mean, if they are not a good number we would be peering immediately into the abyss of recession.

They should be up however and for two very good reasons. Firstly, July was a big goods ‘on sale’ and season travels month. Secondly, it is just the statistical pendulum effect. This is that given all such data is a mere sample survey, what tends to happen is that the data meanders around where reality lay. Rather than representing reality accurately. There is a whole industry built around the excitement of each 0.1% variation in the run of data, but the reality is something we never really get to glimpse. Only get an idea of.

That said, Retail Sales should be ticking up. Market expectations are for an impressive 0.4% in July. Why? Because this is a safe number to the economists in the midst of the two previous prints of 0.5% and 0.2%. They just want to keep their jobs really. However, I believe there is an underlying weakening trend whether it shows up today or not.

Here is my take away. If Retail Sales disappoint on what should be the last good month before further slippage, then it will be a major sell the stock market signal. The ‘spin assassins of reality’; will on the day go all out to turn such a development into “oh, great, this means rate cuts”? Oh…. No.

If they get their 0.4% or higher, it will be all about ‘buy stocks’ as it means a firm economy forget the Fed?

Anyhow, it is an important number this time around and it deserves our attention. There will doubtless be significant volatility in the moment, the triggering of stops on both sides of the market by some major price makers to get their easy pay day. After a few hours though, things should settle down and we should get a real trend from here.

It has been a bit of a wishy washy washing machine of late. Some significant downside, but nothing emphatic. In fact, the market looks to be wanting to rally again out of this short term consolidation phase?

Expect fireworks. You shouldn’t be disappointed.

Clifford BennettACY Securities Chief Economist

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