US initial jobless claims were strong, including the best unadjusted number on record, but the dollar cooled on August retail sales data.
The headlined appeared strong at +0.3% compared to a flat reading expected but digging deeper into the numbers painted a different picture. For starters, the July data was revised to -0.4% from 0.0% so it was starting at a lower base. Secondly, excluding the volatile autos, gasoline and building materials cateogories, sales were flat compared to +0.5% expected. That was also compounded by a revision in the prior to +0.4% from +0.8%.
So on the whole the report should give the Fed some indications that consumers are easing off. One quirk in the report is that new car sales were particularly high, which isn't what you would expect with a retrenching consumer and rising interest rates. However, I suspect that this was due to surging deliveries from cars ordered much earlier as supply chains improve.
In any case, the US dollar is edging lower. Implied odds of a 100 bps Fed hike are down to 21% from 35% yesterday.
There's still plenty to sort through here but if I'm the Fed watching these numbers, I'm starting to see signs of cooling inflation. The prices paid component in the Philly Fed was also at the lowest since Dec 2020. The drop in the Empire survey was similar.
The moves in FX have been tentative so far but EUR/USD has crept back above parity and I think there's room for a bit more relief.
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