WAS FRIDAY’S RETAIL AND INFLATION STATISTICS OF SIGNIFICANCE?

Is the narrative about to change about the strength of the economy and inflationary pressures?  June’s core CPI rose by 0.2% for the third consecutive month, a rise from increased shelter costs.  The core CPI is now up 2.3% from June 2015, matching the largest year over year advance since the expansion began in mid-2009.  As noted many times, shelter costs are the largest component of most inflationary indices and have been muted since 2007.

I rhetorically ask what will be the ramifications if shelter costs continue to rise from extremely depressed levels?  Will the bond market radically change its views of inflationary expectations?

June’s retail sales were also stronger than expected.  The retail sales group (excludes autos, building materials, food and gas and utilized to calculate GDP) rose at a 7.4% annual rate, the fastest rise in over two years.

Against this backdrop, estimates for second quarter growth have been increased from a low “two handle to a high two handle.”  Inflationary expectations have also risen.

Yields in the Treasury market rose again Friday on the data and the German 10-year note is now back into positive territory on the emerging belief the US will continue to be the proverbial locomotive of global growth.

There is little on this week’s economic calendar other than housing data, which in itself is significant given that the great recession commenced in housing and will end with housing.  Moreover the vast majority of people gauge their net worth by the value of their homes not their stock account.

Earning season accelerates this week.  The few results posted last week were encouraging albeit expectations have been greatly reduced.

Last night the foreign markets were mixed.  London was up 0.44%, Paris down 0.08%,  and Frankfurt up 0.08%.  China was down 0.53%,  Japan up 0.68% and Hang Sang up up 0.66%.

The Dow should open nominally higher, displaying resilience after a failed coup in Turkey, mayhem in France, cold blooded murder in Baton Rouge and raising political chaos throughout the democratic and developed world.    And then there are earnings, estimates which have been dumbed down to levels that may create an environment that almost any release will be an upside surprise.  The 10-year is off 5/32 to yield 1.41%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.