US retail sales bounces back but more is required for a rate hike - ING

James Knightley, Research Analyst at ING, notes that the US retail sales for April were up 1.3%MoM, above the 0.8% consensus while the “control group” which strips out some of the most volatile components reported growth of 0.9% (the strongest outcome since March 2014) versus the 0.4% consensus expectation.

Key Quotes

“It looks a decent report throughout with 11 of the 13 major categories reporting growth. Autos were up 3.2%, gasoline stations sales up 2.2% while the non-store category (largely internet) saw sales rise 2.1%. Building materials saw sales fall 1%MoM, but it has had a strong run of late with the YoY growth looking healthy at +5.5%.

This report is likely to generate some encouraging headlines suggesting a bounceback in consumer activity, and it certainly is good news. However, the Federal Reserve will want to make sure it isn’t just a one-off. With other activity indicators suggesting that there has been something of a loss of momentum over the past twelve months we still favour just one-rate rise this year, which will most likely come in 3Q16.

We continue to doubt that the Fed will hike in June. This partly reflect the need for a better run of data, but also external risks. One of those is Brexit – should the UK vote to leave the EU on June 23rd this could see both the euro and sterling tumble against the dollar, which will lead to a tightening of financial conditions that may deter the Fed from tightening policy.”