US Retail Sales Rebound in January, Indicating a Strong Economy and Positive Outlook for Interest Rates

By: Miguel A. Rodriguez

09:52, 16 February 2023

US Dollar

US retail sales in the beginning of the year exceeded expectations, suggesting an increase in consumer spending potentially due to a tight job market and high but stable inflation. 

Retail sales in the US grew more than expected at the beginning of the year, indicating that consumers' willingness to spend may be increasing, partly due to a tight job market and subdued but still high inflation. 

The Commerce Department released new figures on Wednesday, revealing that seasonally adjusted retail sales in the US economy increased by 3.0% in January, rebounding from a -1.1% decline in December. Economists had estimated that the figure would increase by 1.8%. 

As a result of this data, which indicates an unusual strength in the US economy, interest rates on the bond market increased across the 10-year curve, reaching 3.80% - the highest level so far this year. 

The market is starting to move away from the idea that the Fed will need to cut interest rates at the end of the year, as the projected terminal rate for Fed Funds futures market rises to 5.20% after ongoing rate hikes come to an end. 

The price of the 10-year US Tnote has fallen to the lows seen at the end of December, and is currently in the support zone around 111.90. If it falls below this level, it could potentially open the path to further losses. 

Related: What are bonds and how do they work?  

The market's opinion is starting to shift as a result of strong employment and retail sales data, along with a deceleration in the decline of the CPI. The idea of a recession has been abandoned, leading to revised forecasts for future interest rates that indicate higher and more sustained levels over time. This shift has also caused the US dollar to reverse its downward trend, while the stock market has remained stagnant with sideways movements in recent days. 

However, while the US economy does not appear to be weakening, the International Energy Agency's forecasts for global oil demand are not optimistic. In addition, yesterday's inventory figures showed a surprising increase of 16.2 million barrels, compared to the expected 1.1 million barrels, causing downward pressure on crude oil prices, which fell by around $1 during the session. 

Related: Oil analysis and price predictions 

TNOTE10 Price chart

Sources: Bloomberg, Reuters  

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