The Daily Update – Sales or No Sales That is the Question

Those readers that have spoken with us over the recent past will know that our outlook is for the Fed to pause and that we feel there is an equal chance of a rate hike or indeed a cut as the next move in the Fed funds rate. We think the Fed will utilise their balance sheet rather than the fund's rate to add/withdraw liquidity during a period of high data dependency.

Data thus far has been supportive of the Fed maintaining their current stance with the ISM and non-farm payrolls releases showing a continuation of momentum in the economy. Inflation both CPI and PPI were lower than market calls except in the year-on-year rates which ticked up .01% in both cases and anecdotal evidence would suggest a strong sales period post the holiday period according to reports.

So yesterday’s retail sales report for December was a big miss on market calls of up 0.1%, as it came in at -1.2% headline and -1.7% ex auto, gas, building materials and food services. Now let’s not bet the house on one data release but it is also hard to ignore. Fed governor Brainard was quick to say that the report is a reminder of ‘downside risks’ facing the economy and that ‘downside risks had definitely increased’ adding that the Fed also has to ‘take on board’ new evidence of weaker foreign growth and tighter financial conditions abroad.

Whether this number was a glitch due to weather or the Government shut down or something more worrying for the US economy remains to be seen, but it does argue for the Fed to maintain their patient outlook; sitting on hands highly recommended.

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