CM – Mixed US retail sales and PPIs won’t make the FOMC decision to “taper talk” any easier

Joe Perry
June 15, 2021 3:19 PM

Previously published headline retail sales for May were -1.3% MoM versus an expectation of -0.7% MoM. Additionally, retail sales excluding cars were down at -0.7% MoM and are expected to be 0.2% MoM. Bad as the May headline numbers look, the April series have been revised much higher, meaning those numbers were a little stronger than expected. The April headline print was changed from 0.0% per month to 0.9% per month. In addition, retail sales excluding cars have been revised from -0.8% MoM to 0.0% MoM. As such, May retail sales data may not play a huge role in tomorrow’s FOMC decision.

Additionally, the US PPI was 0.8% MoM versus an expectation of 0.6% MoM and 0.6 % MoM in April. The core PPI, which excludes volatile food and energy prices, was 0.7% MoM compared to an expectation of 0.5% MoM and 0.5% MoM most recently. Those are sharp rises, but the FOMC will be watching the YoY data for inflation. And that didn’t disappoint! The headline PPI YoY Print was 6.6% versus 6.3% expected and 6.2% in April. The Core PPI YoY Print was 4.8% versus 4.8% expected and 4.1% in April. Hence, PPI is still running hot. However, some commodity prices such as copper and lumber fell in the first half of June. Will this result in the FOMC rejecting the May PPI and rolling back talks on the throttling so they have more time to determine if inflation is really temporary?

We’d be remiss if we didn’t notice would expect the NY State Empire Manufacturing Index for June at 17.4 versus 23 and was worse 23 last. This is one of our first indications for June that production may slow down. In the absence of more economic data for June, will the Fed hold it on its current bias and hold back talks about the tapering?

The US Dollar Index (DXY) trended higher all night. When releasing the data, the DXY pulled back 15 pips. Note that the index is right in the middle of a range between the 50% and 61.8% Fibonacci retracement from the highs on May 5th to the lows on May 25th near 90.50. On May 27, the DXY broke out of a retrograde wedge. The target for a wedge breakout is a 100% retracement, which is at 91.40. On the way to the FOMC tomorrow, the price can stay in the mid-range until after the FOMC announcement.

In summary, US data today was mixed: slightly stronger retail sales for May (due to the April revisions) , stronger PPI data for May and a worse-than-expected NY State Manufacturing Index for June. If the FOMC waited to see this data to help them decide whether to start talking « about tapering, » today’s mixed bag is not going to help them!

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