What gives? Retail sales climbed in April by the most in 13 months, abruptly ending an early year letdown in spending that cause a first quarter down shift in the economy. The gains were broad based.
A sentiment survey form the University Of Michigan helps explain the resurgence in sales. Confidence surged in early May to an almost one year high as households grew the most upbeat about their inflation adjusted incomes than at any time in a decade. Such wherewithal to spend means the economy has a tailwind that will probably lead to faster growth in the second quarter.
To write the incredibly obvious, today’s data is a direct contradiction of recent earnings reports and narrative from a myriad of retailers.
Because of the above reports, the dollar strengthened, oil and equities fell as such reignited speculation the Federal Reserve may lift interest rates as early as June, a point validated by the yield curve between the two year and ten year treasury which is now at the narrowest point since 2007.
Because of the above, the S & P has now dropped for three consecutive weeks, the longest losing streak in four months, closing Friday at a month low.
What will the data suggest this week? Will the narrative change radically to one of growth versus slowdown? The economic calendar is robust as various manufacturing and housing statistics released as is an inflation index and the Minutes from the April Fed meeting.
Last night the foreign markets were mixed. London was down 0.40%, Paris down 0.84% and Frankfurt up 0.92%. China was up 0.84%, Japan up 0.33% and Hang Sang up 0.84%.
The Dow should open flat as crude is up about 2%. Goldman commented that the oil market has switched to a deficit given supply disruptions in Nigeria and Venezuela, and greater than expected output cuts in the US and China. The 10-year is off 5/32 to yield 1.72%.