July 17 – The European Union trade chief is in Washington this morning to negotiate a trade deal, hoping that it can join Britain, Vietnam and Indonesia on the list of those who avoid President Trump’s reciprocal tariffs on August 1. But the immediate focus is on this morning’s favorable retail sales and weekly jobs data, with stock futures rallying after the release of the data. The VIX is back to trading near 17 this morning after the recent spike, while the dollar index is trading firmer near 98.7. Yields on 10-year Treasuries are trading near 4.44%, falling after this morning’s data release, while yields on 2-year Treasuries are trading near 3.89%. Crude oil prices are modestly higher, while the grain and oilseed markets were modestly weaker overnight.
Retail sales rose 0.6% month-on-month in June, reflecting a reversal from the -0.9% posted in May, and exceeding analyst expectations of +0.1%. Retail sales minus vehicles rose 0.5% month-on-month in May, more than reversing the -0.2% posted in May, and well above the 0.3% anticipated by analysts. Retail sales minus vehicles and gas rose a solid 0.6% on the month, after being flat in May. Analysts were looking for 0.1% growth. The headline numbers for retail sales are impressive, suggesting good growth in economic activity in June as the second quarter wrapped up.
First-time claims for unemployment benefits fell to 221K in the week ending July 12, down from 228K the previous week, and below analyst expectations of 233K. The four-week moving average dropped to 229.5K claims, down from 235.75K the previous week. Continuing claims for the week ending July 5 rose by 2K to 1.956 million after the previous week’s total was revised down by 11K. The four-week moving average rose by 4,750 to 1.958 million. This is the highest level for the average since November 20, 2021. Initial claims filed by former Federal civilian employees in the week ending July 5 totaled 596, up 158 from the previous week. There were 7,035 continuing claims filed by former Federal civilian employees in the week ending June 28, up 88 on the week. This data suggests that the number of people losing their jobs on a weekly basis remains low, but those who have lost their jobs continue to struggle to find a new job.
The Philadelphia Fed manufacturing index rose to 15.9 for July, up from -4.0 in June, and well above analyst expectations of -0.4. A positive number reflects month-on-month growth for the sector in the region, whereas a negative number depicts contraction. Both new orders and shipments increased this month, joining the general index in posting their highest values since February. The employment index turned positive again in July as well. Both price indices rose after declining last month, reflecting overall price increases. The survey results indicate that participating firms continue to expect growth over the next six months. This positive report follows a very similar positive report from the New York Fed district yesterday, suggesting an improving outlook for manufacturing.
Import prices rose by just 0.1% on the month in June, versus analyst expectations of a 0.2% rise. The May reading was revised to -0.4%, after initially being reported at 0.0%. Import prices overall were down 0.2% year-on-year in June, versus analyst expectations that they would remain at 0.2%. Export prices rose by 0.5% on the month, after falling 0.6% in May, and versus expectations that they would fall 0.1%. Export prices were up 2.8% year-on-year in June, versus being up 1.7% in May. The data suggests that the tariff war is not resulting in us importing inflation, but it does indicate that we are beginning to export inflation. Wall Street interpreted all of the above as evidence that the Fed has a runway for cutting interest rates later this year as the economy grows amid contained inflation.
President Trump softened his tone toward China regarding the fentanyl issue this week, stating that Beijing is “making big steps” in its efforts to control the flow of fentanyl. This provides another positive sign that President Trump is trying to thaw relations with China ahead of the next round of anticipated negotiations – likely coming after August 1. The White House is currently focused on getting as many trade agreements as possible from other countries before the reciprocal tariffs go back into effect on August 1. There have been hints that a broader trade deal with China could look similar to the Phase One trade deal signed during Trump 1.0, although that has not been stated in official channels. There is chatter in the Chinese cash markets that Sinograin – China’s state buyer – was seeking offers for soybeans at the U.S. Gulf, but that could not be confirmed this morning. We continue to see periodic strength in corn and soybean prices on concerns that we could see current strong crop ratings decline in the weeks ahead. Reports of pollination problems continue to emerge for the corn crop, although it’s still too early to know the scope of the problem. The August Midwest weather outlook continues to suggest hot dry risks as well, which could threaten soybean yields, although that’s been the risk all summer long and it has failed to move forward into the current forecast. Nonetheless, we will see more heat in the Midwest over the coming week.
