Mixed US Retail Sales and PPI wont help the FOMC taper talk decision be any easier

The headline Retail Sales for May released earlier was -1.3% MoM vs an expectation of –0.7% MoM.  In addition, Retail Sales ex-autos was -0.7% MoM vs and expectation of 0.2% MoM.  However, as bad as the headline numbers look for May, the April data series was revised much higher, meaning these numbers were slightly stronger than expected.  April’s headline print was revised from 0.0% MoM  to +0.9% MoM.  In addition,  the retail sales ex-autos print was revised from -0.8% MoM  to 0.0% MoM.  Therefore, the May Retail Sales data may not play much a of a factor in tomorrow’s FOMC decision.

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In addition, US PPI was 0.8% MoM  vs an expectation of 0.6% MoM and 0.6% MoM in April.  The Core PPI, which strips out volatile food and energy prices, was 0.7% MoM vs and expectation of 0.5% MoM and 0.5% MoM last.  Those are strong increases, but the FOMC will be watching the YoY data for inflation. And that didn’t disappoint!  The headline PPI YoY print was 6.6% vs 6.3% expected and 6.2% in April.  The core PPI YoY print was 4.8% vs 4.8% expected and 4.1% in April. Therefore, PPI is still running hot.  However, some commodity prices, such as copper and lumber, have been moving lower during the first half of June.  Will this cause the FOMC to dismiss May PPI and push back tapering talk so they can have more time to determine if inflation is truly transitory?

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We’d be remiss if we didn’t note that the NY State Empire Manufacturing Index for June came out worse at 17.4 vs 23 expected and 23 last.  This is one of our first indications for June that manufacturing may be slowing.  With lack of more June economic data, will this cause the Fed to maintain their current bias and hold off on the tapering talk?

The US Dollar Index (DXY) had been trending higher all night.  On the data release, the DXY pulled back 15 pips. Notice that the index is right in the middle of a range between the 50% and 61.8% Fibonacci retracement from the highs on May 5^th to the lows on May 25^th, near 90.50.  On May 27^th, the DXY broke out of a bearish wedge.  The target for the breakout of a wedge is a 100% retracement, which is near 91.40.  Heading into the FOMC tomorrow, price may remain mid-range until after the  FOMC announcement.

Source: Tradingview, City Index

In summary, the US data today was mixed:  slightly stronger retail sales for May (due to April revisions), stronger PPI data for May, and a worse than expected NY State Manufacturing Index for June.  If the FOMC was waiting to see this data to try and help them decide on whether to start “talking about tapering”, today’s mixed bag won’t help them!

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