Key US data previews: Fed, retails sales, CPI - Nomura
|Analysts at Nomura offered a preview of the forthcoming key US events.
Key Quotes:
"At this point it would be very surprising if the FOMC does not raise its target rate for the funds rate to 1-1.25%. The preponderance of Fed speakers in recent weeks has made no attempt to dissuade markets that a hike is coming in June. The bigger issue at stake is what the FOMC signals about what comes afterwards. Since the March meeting, inflation has been weaker than expected. However, the unemployment rate has fallen more than expected and is now well below the FOMC’s own estimates of the level that is consistent with “maximum sustainable employment.” These two developments would, on their own, tend to push policy in opposite directions. As these are relatively recent developments, we expect the FOMC to acknowledge these movements, but we anticipate only minor changes to its economic outlook. Regarding inflation, FOMC members have stated the weakness is likely transitory. Instead of revising their forecasts materially at the June meeting, we expect more substantive changes in the September meeting after more data become available and a more thorough reassessment can take place. In effect, we expect the FOMC to wait to see how these trends evolve before signaling a change in its economic outlook. On balance sheet policy, we expect the FOMC to continue to discuss its plans for allowing the portfolio to roll off. But we are not expecting a major announcement at this meeting. We do not think the FOMC needs to settle the key issues of when the roll-off will begin, and its initial pace and subsequent trajectory, at this meeting. Moreover, recent statements do not suggest the FOMC has reached a consensus on those, and other, important issues (read more: June FOMC Preview, Policy Watch, 9 June 2017)
CPI: We expect core CPI inflation to accelerate to a trend-like pace of 0.2% (0.159%) mo-m (1.840% y-o-y) in May (Consensus: 0.2% m-o-m, 1.9% y-o-y). Core CPI inflation increased only 0.1% (0.071%) m-o-m in April after the decline since January 2010 in March. Some downward pressure on core CPI over the prior two months (e.g., wireless telephone services), appears, to a large extent, to have waned in May. However, we do not expect a big jump to compensate for the weakness in the prior months. Among noncore components, energy prices likely declined sharply by 3.1% m-o-m in May, led by a more than 5% drop in domestic gasoline prices. On the other hand, food prices likely continued to rise modestly by 0.4%. Overall, we think headline CPI inched down 0.1% (0.052%) m-o-m (Consensus: 0.0%). This forecast implies a 1.966% y-o-y increase (Consensus: 2.0%). Our forecast for CPI NSA is 244.952 (Consensus: 244.900). Read more: May CPI Preview, Economics Insights, 13 June 2017.
Retail sales: Top-line retail sales increased 0.4% m-o-m April. Core (“control”) retail sales (excluding autos, gasoline, building material and food services), an important component in estimating real growth in personal consumption expenditure, increased steadily in recent month. Incoming data suggest continued growth in core retail sales in May. Although ISM nonmanufacturing index declined slightly in May, it still remained at a highly elevated reading of 60.7 pointing to resilient optimism. The employment in core retail sector has been soft, declining 0.1% in May after remaining flat in April. However, given healthy consumer fundamentals such as firm job gains and income growth, we think core retail sales continued to improve. Thus, we forecast a steady 0.2% m-o-m increase in core retail sales (Consensus: +0.3%). For non-core components, we expect a sharp slowdown in sales at gasoline stations as domestic gasoline prices plunged in May after a solid gain in April. Despite OPEC’s effort to buoy oil prices, increases in domestic oil production may have allayed upward pressure on prices. Moreover, we expect a sharp decline in sales at motor vehicle and parts dealers as suggested by sluggish consumer light vehicle sales in May. Total light vehicle sales came in below expectation at an annualized pace of 16.6mn units, much lower than a 2016 average of 17.5mn units. Excluding auto sales, we forecast a 0.2% mo-m decline (Consensus: +0.1%). Altogether, we expect top-line retail sales to have fallen 0.2% m-o-m (Consensus: 0.0%)."
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