Soft economic data boost case for no Fed rate hike

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If the sudden banking crisis wasn’t enough, the Fed has more reason not to hike its key interest rate next week. Retail sales slipped slightly more than forecast and the producer price index unexpectedly fell in February. The report casts some doubt on the notion that the economy and have a full head of steam in early 2023. Following the reports, the S&P 500 opened sharply lower as bank stocks remained under pressure.


retail sales report details

Overall retail sales fell 0.4% compared to expectations for a 0.3% decline. Excluding vehicles, sales declined 0.1%, short of estimates for 0.2% growth.

January sales rose 3.2% overall, revised from the 3% reported last month. Excluding autos, January sales rose 2.4%, revised up from 2.3%.

Factoring in sales at gas stations, which fell 0.6%, as well as autos, retail sales were flat in February.

An 8.7% increase in cost-of-living Social Security checks helped fuel January’s big gain. Meanwhile, February sales faced more hurdles as 30 million households lost an additional $5 per month in pandemic-era Supplemental Nutrition Assistance Program benefits.

Meanwhile, the producer price index fell 0.1% in February as the annual rate for wholesale prices eased to 4.6% from a revised 5.4% in January.

In addition, the New York Fed’s Empire State Manufacturing Index fell to -24.6 in March from -5.8 in February. This is the vs view for -7.7.

Reaction to S&P 500 Retail Sales

The S&P 500 fell 1.5% in Wednesday stock market action, following the retail sales report and other data. Big US banks take a hit overnight amid a selloff in European bank stocks Suisse ,C) reached an all-time low.

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The S&P 500 jumped 1.65% on Tuesday, snapping a three-session losing streak as SVB Financial Group overnight collapsed.

As of Tuesday’s close, the S&P 500 is up .6% from its bear-market closing low on October 12, but down 18.3% from its all-time high set in early 2022.

The 10-year Treasury yield fell 18 basis points to 3.46% early Wednesday, after jumping 12 basis points on Tuesday.

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Fed rate-hike odds fall

Following the retail sales and PPI reports, markets were pricing in 47% odds of a Fed rate hike on March 22 and 53% odds of a quarter-point move. On Tuesday, markets saw 30% odds that the Fed would stand pat.

Markets are now betting on a pause in May, with several Fed rate cuts in the upcoming meetings.

The sudden banking crisis, which led to the weekend bailout of all SVB and Signature Bank depositors – even those whose deposits were not guaranteed – has put on hold the Fed’s plan to raise its key interest rate. Previously, Fed officials said hiking costs more easily than hiking costs too much. But with the sudden evidence of banking-sector fragility, the risks are now at least balanced or perhaps even tilted the other way.

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