June Retail Sales Stagnate: Traders Fully Price In September Interest Rate Cut

U.S. retail sales stagnated on a month-over-month basis in June 2024, declining from upwardly revised 0.3% growth in May to zero growth and matching the forecasted flat reading, according to preliminary estimates released Tuesday.

Fed futures indicate a 100% likelihood of a rate cut in September, according to the CME Group‘s FedWatch tool. Traders assign an 88% probability to a 25-basis-point rate cut and a 12% probability to a 50-basis-point rate cut.

On Monday, Fed Chair Jerome Powell sounded more dovish than anticipated, suggesting that recent inflation reports show welcome progress toward the 2% target, increasing confidence that policymakers may be inclined to lower interest rates.

Powell also mentioned that an unexpected weakening in the U.S. labor market could be a factor prompting the Fed to take action.

June Retail Sales Report: Key Highlights

• On a year-over-year basis, retail sales rose by 2.3% in June, slowing from an upwardly revised 2.6% in May.
• Excluding motor vehicle and parts, retail sales increased by 0.4% month-over-month, up from 0.1% in May and topping the expected 0.1%, according to TradingEconomics data.
• Excluding gasoline, motor vehicle and parts, retail sales rose 0.8% month-over-month in June, beating expectations of 0.2% growth and advancing from an upwardly revised 0.3% gain in May.
• Among different spending categories, the largest monthly increases were seen in nonstore retailers, with a 1.9% rise, followed by building material, garden equipment and supplies dealers, up 1.4%.
• The largest monthly drops were seen in gasoline stations, down 3%, and motor vehicle and parts dealers, down 2%.

Market Reactions: Dollar, Treasury Yields Slightly Rebound

Following the release of June retail sales data, the U.S. dollar strengthened and Treasury yields trimmed session losses.

The U.S. Dollar Index, as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, rose 0.2%.

Treasury yields were down by 3 basis points in the long end, with the 30-year yield hovering at 4.44%.

Futures on major U.S. averages traded higher during Tuesday premarket trading. Contracts on the S&P 500 were 0.4% higher by 8:40 a.m. ET.

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