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Fixed Income Market Commentary by Kevin Giddis

July 16, 2019

The Treasury market is trading lower this morning as a better than expected Retail Sales number just adds to the mystery of the U.S. economy. Sales as a headline number rose 0.4% in June vs. an expected increase of 0.1%. Retail Sales less autos still rose 0.4%, indicating that there is underlying strength in the economy. This seems to suggest that if the Fed lowers the Fed Funds rate at the end of the month, it might be the only time they do it in 2019.  In what was expected to be a sleepy day on Wall Street, this number has given traders something to talk about and might just create a trade or two on the news. Later this morning we will get Industrial Production (exp. up 0.1%), and Capacity Utilization (exp. unchanged at 78.1%), for the month of June, so we will see if those numbers will surprise as well. Away from this news, the market is turning its attention to things like the debt ceiling, U.S.-China trade talks, and a handful of Fed speeches that might garner a few useful comments. The Fed Chair is speaking at a Bank of France dinner in Paris, some are touring the country speaking at several “Fed Listens” events, and Chicago Fed President Charles Evans is speaking this afternoon at a CNBC event in Chicago. While today’s economic data doesn’t necessarily change what the market expects the FOMC to do later this month (ease by 25 basis points), it does continue to suggest that the U.S. economy isn’t about to roll over and play dead. If you are an optimist, then you may want to turn your attention to the possibility that if the U.S. sends a contingent of negotiators to Beijing next week, something good may come from it. If that is the case and a trade deal can be reached, then would the Fed, again, take all of this into consideration at the next three meeting of 2019 based on the numbers that we are getting? Just when you thought it was safe to go out and this very mature U.S. economy to declare that it is ready for the old folk’s home, it turns and gives you more than you expected. While I do think the Fed will stay on track with a rate cut on July 31st, numbers like today’s Retail Sales will give investors pause, and may just get traders to sit up and take notice on a sleepy summer day!


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