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Wall Street stocks and Treasuries dip after strong retail sales data

Newsletter: Unhedged

US stocks and government bonds slipped on Thursday after stronger than expected data on American retail sales raised expectations that the Federal Reserve would soon begin reining in its stimulus efforts.

Wall Street’s blue-chip S&P 500 and Dow Jones indices were both down 0.3 per cent in afternoon trading in New York, slightly off earlier lows. The technology-heavy Nasdaq Composite index was roughly unchanged on the day. US Treasury prices were also under pressure, pushing the yield on the benchmark 10-year note up 0.03 percentage points to 1.33 per cent.

The soft session came after a report from the commerce department showed US retail sales climbed 0.7 per cent in August compared with July, widely topping economists’ expectations for a 0.8 per cent decline.

Consumption accounts for about 70 per cent of US economic output, so retail sales data are scrutinised by many Wall Street traders.

“The health of the US consumer is really one of the most important anchors of sustained economic recovery,” said Madison Faller, global market strategist at JPMorgan Private Bank.

“We’re really expecting more strong demand out of the consumption part of the economy,” she added, “particularly given the fact that consumers have really healthy balance sheets including trillions of dollars of excess savings that can help fuel future spending.”

The positive data bolster Fed chair Jay Powell’s signal in August that the world’s most influential central bank could begin slowing its $120bn-a-month asset purchase programme this year. The Fed meets next week, when traders will watch closely for any update on plans to “taper” its bond-buying programme.

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The stimulus has been a crucial pillar supporting the rally in many risk assets, propelling the S&P 500 up more than 18 per cent this year. Without the Fed as a buyer, the prospect of more Treasury debt supply has driven prices lower and yields higher.

Joshua Shapiro, chief US economist at MFR, said while one-time factors could have affected the August retail sales data, “in the ‘will they or won’t they’ debate about a Fed taper announcement next Wednesday, this report certainly supports the pro-taper side of the argument”.

Stocks in Europe fared better than those on Wall Street, with the region-wide Stoxx 600 benchmark closing up 0.4 per cent, buoyed by the continent’s travel and leisure sector that jumped 3.4 per cent after the Irish low-cost carrier Ryanair raised its traffic growth outlook.

Column chart of Hang Seng index, weekly % change showing Hong Kong stocks on track for worst week since March 2020

In Asia, Hong Kong’s Hang Seng index lost 1.5 per cent after Beijing’s intensifying focus on sectors spanning gambling to education knocked investor sentiment.

The casino group Sands China was among the biggest fallers for the second day in a slide triggered by efforts from Macau’s government to tighten oversight of the industry. The Hang Seng gauge has shed almost 6 per cent this week, leaving it on track for its worst run since the market tumult in March last year.

The oil benchmark Brent crude rose 0.3 per cent to $75.70 a barrel, having rallied this week after Hurricane Ida led to the closure of US refineries.


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