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US Retail Sales Data Pushes Off Rate Cuts While Big Earnings Are Upcoming

Miguel A. Rodriguez
Miguel A. Rodriguez
18 January 2024

Let’s dive into today’s daily market analysis. Learn how the markets reacted to Retail Sales data including indices, Oil, and the USD’s performance. 

The US Joins the EU with Rate Cut Hesitations

Doubts about the likelihood that the US Federal Reserve will begin interest rate cuts shortly intensified yesterday after US Retail Sales data rose 0.6% month-on-month in December, and 5.59% year-on-year. Figures higher than those of the previous month and above expectations that show that consumption in the United States is robust, which may make it difficult for inflation to continue downward, as is the objective of the Federal Reserve.

US Retail Sales Push Bonds Up and Rate Cuts Back

Treasury bond yields (market interest rates) rose 13 bps to 4.3% after the sales data was released.

The US Retail Sales data is an indicator of domestic demand (one of the main components of GDP) and suggests that the economy is still on solid ground, allowing the Federal Reserve to keep interest rates at high levels for longer than expected by the market.

Investors reduced their bets on Federal Reserve interest rate cuts. Following the figure, Federal Reserve swaps show the probability of a rate cut as soon as March is at 60%, compared to the 80% on Friday.

Indices Continue with Downward Momentum

Another result of this data, the stock indices fell, increasing the losses of this first month of the year, with the technological Nasdaq being the one that suffered the greatest losses as this index is the most sensitive to changes in interest rates.

The market will be closely monitoring the next earnings releases from the technology giants in case they can act as a trigger and stop the current downward momentum essentially motivated by the change in expectations about interest rates.

Upcoming Earnings Watch: 

February  

Wall Street's "fear gauge", the VIX, which is an indicator of the level of volatility in the stock market, and usually rises when the market is vulnerable and uncertainty is high, reached its highest level since November 2023. 

Interfaz de usuario gráfica, Gráfico

Descripción generada automáticamente

VIXX daily chart, January 17, 2024. Source: CAPEX.com WebTrader.

  

The USD Continues Its Surge While Oil Slumps

The US Dollar continued to rise yesterday driven by interest rates with the EUR/USD pair reaching a new low in the 1.0940 area where there is a support level defined by the 100-day moving average.

In the commodities market, Oil prices fell sharply, and WTI Oil was trading below $71 after China's GDP data showed poor figures. It is worth noting that China is the second-largest consumer of Crude Oil in the world. Today, the International Energy Administration publishes the weekly Crude Oil Inventory data. Key numbers of interest that will probably have an impact on the price of Oil.

 

 

Key Takeaway

  • US Retail Sales Data showed there is spending and confirmed the Fed's decision to set the timeline for potential rate cuts back.
  • Indices reacted negatively to Retail Sales, pushing the price even lower.
  • Big Tech and other powerhouse companies are reporting earnings.
  • The USD continues on the upward path. EUR/USD reached a new low near 1.0940.
  • Crude Oil Inventory Data is published today, expect greater Oil movement.

 

 

Sources: Bloomberg, Reuters

 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.