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The United States economic data released Thursday disappointed market as retail sales, producer price index and industrial production remained well below the consensus expectations. This further decreased the possibilities of September rate hike hopes among investors, causing to be risk averse.
The benchmark 10-year Treasury yield fell below 1.70 percent mark (down 2 basis points to 1.684 percent) and the yield on short-term 2-year note also dipped below 0.80 percent (down 1/2 basis point to 0.734 percent) by 11:30 GMT.
The US advance retail sales fell 0.3 percent m/m in August, below market expectations for an unchanged m/m reading, as compared to the revised +0.1 percent m/m reading that occurred in July. Ex-autos retail sales decreased 0.1 percent m/m, also below expectations for a +0.3 percent m/m result, from the revised -0.4 percent m/m reading seen in July.
Despite weaker than expected headline reading, we continue to anticipate broader improvement in consumer activity in the coming months, likely to come hand-in-hand with improvement in employment conditions.
Moreover, the August US Labour Department producer prices index (PPI) report revealed an overall unchanged m/m result, comes in below market expectations for a +0.1 percent m/m result, as compared to the -0.4 percent m/m decrease that occurred in July. On an annual basis, it also remained steady.
The Federal Reserve report on industrial production and capacity utilization revealed a -0.4 percent m/m industrial production reading for August, below market expectations for -0.2 percent m/m result, from the revised +0.6 percent m/m reading seen in July (previous was +0.7 percent).Despite the decrease seen in August, this series continues to show modest support at current levels, remaining generally supportive of our call for extended GDP gains as we move further into 2016.
In addition, the US CPI data are the last set of key data before the Fed meets next week. We doubt the picture here will change sufficiently to alter the inflation view held by the dovish FOMC members, reported ANZ.
Next week’s FOMC meeting is set to be interesting given the recent divergent Fed speak. The dovish view appears to be in the ascendency for now. We expect no change in policy. The Fed is extending its forecasts out to 2019. We expect there to be a flattening in the Fed’s median ‘dot plot’ with just one hike for this year and two hikes per year (compared to three in the June forecasts) thereafter, they added.
Lastly, markets now look ahead to a considerably lighter calendar to finish off the week on Friday, highlighted by consumer prices and University of Michigan consumer sentiment, followed later by TIC flows data.
