James Knightley, Senior Economist at ING, said that today’s reports on US retail sales and Producer Inflation point to monetary policy tightening from the Federal Reserve (Fed).
“US retail sales growth was +0.6%MoM in September, in line with consensus, but it was a rebound from the (slightly upwardly revised) -0.2% reading from August. The details show that autos and gasoline station sales were the main positives.”
“The one disappointment was the 0.1% gain in what is called the “control” group. This excludes the volatile components, such as food, autos, gasoline and building materials – it has a better relationship with overall consumer spending. As such, it poses some risk of disappointment to 3Q consumer spending within the GDP report.”
“Producer price inflation was slightly firmer than expected, up 0.3%MoM (0.7%YoY up from 0.0% last month) versus the consensus 0.2%, while core inflation (ex food & energy) came in a little higher than expected too at 0.2%MoM (1.2%YoY) versus the consensus forecast for a 0.1% gain.”
“Overall, the reasonably firm retail sales number and slightly higher inflation data support the idea of a Federal Reserve rate hike in December – Fed funds futures currently pricing a 66.7% probability of this happening. The only things that can really stop momentum building for such a move would be a market unfriendly election outcome and softness in the two payrolls reports between now and the December FOMC.”