00:00Mike McKee has more. Hey, Mike.
00:02Good morning, John. Well, if you're the Fed looking to increase interest rates,
00:05you want to know how strong the economy is. The consumer holding up its 1.2% increase in
00:11overall retail sales for the month of August. X autos 1.4%, so even stronger. X autos and gasoline
00:201.2%. The forecast for X autos and gasoline was just for a four-tenths rise. The control group 1
00:28.4%.
00:29That was expected to be up half a percent, and it was down four-tenths. Now, August is back-to
00:34-school
00:34month, so it's not a complete surprise, but it does suggest that the consumer is much stronger
00:39than people have been anticipating, and that should give the Fed more confidence if it wants to raise
00:46rates today. Other indicator out today, import price indexes up by seven-tenths of a percent on the
00:53month. X petroleum up eight-tenths of a percent. So what we're seeing there is some of the tariff
00:59bleed-through is still happening in the economy, which, again, would put its thumb on the scale
01:05maybe for a rate increase. I would imagine that we don't get too much of a move out of this
01:10in the
01:10markets, John, given everybody's position for 2 o'clock, but I'll be back in a second with more
01:16details. Yeah, you get a second look at things, and Mike, you're absolutely right. Not a big move
01:19off the back of this. Yields were lower. They stayed lower. We're down three at the front end.
01:22We were pretty elevated coming into this, around 4.60 on twos. Ten still around 5 percent. Equity
01:28futures unmoved by the whole thing. Futures at the moment on the S&P 500 shaping up as follows.
01:33Still positive by about a third of 1 percent and near session highs on the Nasdaq this morning,
01:37high by 0.6. But Lisa, you put it together, three-month average on payrolls right now north of 70K.
01:43Inflation higher than expected, above target for the Federal Reserve. And retail sales coming in
01:48pretty solidly for the month of August. Even some of the negative numbers that we
01:52saw in the prior month in the month of July were revised to be less negative. So pretty
01:57much across the board, positive. It's notable. I think we should sit on the fact that the market
02:01isn't moving more. Yes, the market was already priced for a 25 basis point rate cut later this
02:07afternoon. But the fact that you're seeing nothing out of the equity market or the bond market after
02:12a pretty punchy, to use your words, beat on retail sales gives a sense of just how irrelevant
02:17all the data points other than CPI. And on the margin, some jobs data actually is. People are
02:23saying, OK, we know it's solid. It doesn't matter how much. Where is CPI? Where are all the
02:27components? It has become an incredibly narrow market that only looks at a couple of different
02:31indicators. This is reinforced by some data we got from Bank of America earlier this week.
02:35They tracked their card spending data. Total card spending per household rose 4.5 percent year
02:40over year in August. Exclude gasoline higher by 3.7 percent year over year. That's some pretty
02:46strong numbers. We were talking to Gina Martin-Adams earlier and she said so far there is no evidence
02:51that the increase in oil prices has curtailed consumer spending capacities. That's the data
02:57that we're seeing. And frankly, that seems to be solidified by the fact that even the overall
03:02comp sales seems to be on par. Question is going forward how much resilience is there. And does
03:08the Fed take a look at this and say, OK, but just wait because there are signs of a slowdown?
03:13Evidently
03:13not many of them coming through. How much higher front end rates do you want there to be? 100 basis
03:18points spread right now between the Fed and the two year. This market's fully priced for a number
03:23of hikes right now. Again, going back to that, I wonder if the implication is the only place they can
03:29go is down. And if the Fed comes out and they say, well, you know, we consider another rate hike
03:34down
03:34the line, maybe that will be considered as a dovish surprise that could send front end yields
03:39tumbling. I mean, it really it shows where the bias right now in the market is pretty high.
03:43Yeah. Going into this afternoon. Mike, you had a second look, buddy. What stands out?
03:48What stands out is the strength of the American consumer. The old saying,
03:51don't stand between an American and a cash register. There is strength everywhere. 14 different
03:56categories of goods are surveyed by the government and 13 of those were up and almost all of those
04:04fairly strongly. The only one down building materials. Grocery stores were up by half a percent.
04:10Health and personal care stores up nine tenths of a percent. Clothing stores up seven tenths. And of
04:16course, as I mentioned, this was back to school time. And general merchandise stores up seven tenths.
04:22Now, non-store retailers saw a lot of strength, 2.6 percent. And that's for August. The prime day
04:29was in June, and that had maybe distorted the numbers for July. But people are back to shopping
04:34online. And food services and drinking places, which is the one service industry in this, and it is also
04:41the most discretionary spending, up 1.2 percent. Gasoline usually distorts this. It was up 3.1 percent.
04:49But remember, as we said, ex-autos and gas stronger than anticipated, up 1.2 percent. So Americans are
04:54still spending money. And some of the debate about whether the Fed should hold or not was,
04:59what will you do to consumer spending? What will you do to the economy? And right now,
05:04it looks like the economy is hanging in there and probably able to absorb at least 25 basis points.
05:10Yes.
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