US DATA: Autos Drive Weak Retail Figure, Potential Tariff And Weather Effects?
Further to our earlier note on the January advance retail sales report ("Poor Retail Sales Bode Ill For Q1 Spending Despite Mitigating Factors"), a couple of other considerations in assessing the importance of the weak monthly reading:
- While December's retail sales growth was revised up, this was offset by downside revisions to November's data (headline was 0.8% but that was revised down to 0.7% in this report, with control group whittled down to 0.1% from a previously estimated 0.4%). Indeed the 0.1pp December upward revision was more than offset by the 0.3pp downward revision to November.
- That helps explain why the 3M/3M annualized reading for control group sales, which we use to proxy GDP goods consumption, saw such a sharp drop in Nov/Dec/Jan compared with the Oct/Nov/Dec.
- We had previously estimated 4.2% real growth in December on that quarterly basis but that's been revised down to 3.6% (potentially leading to a downward revision in that category of Q4 GDP), with the January figure down to 0.4%.
- Can retail sales mount a comeback in this quarter? It's happened before, most recently in May-Jun 2023 before revving up later in the summer (control went from 0.7% 3M/3M annualized to 4.4% in the space of 2 months), and we saw it to a less extreme extent in summer of 2024 where control sales levels went from flat to rising 8% 3M/3M. But February would have to see a big bounce.
- Looking at the categories of retail sales, the breadth of the weakness in January is notable (the only categories to see increases were gasoline, miscellaneous and general merchandise stores and, boding slightly better for services consumption, food services/drinking places.
- But it was really two categories that fuelled the drop: motor vehicles/parts at -2.8% M/M subtracted 0.5pp of the total 0.9% M/M drop in retail sales, with non-store (ie e-commerce) retailers down 1.9%, dragging 0.3pp. Indeed non-store retailers were the only category negative on a Y/Y basis (-1.4%) - all other categories were positive.
- Overall it could be indicative of poor weather in January (and fires in southern California), albeit that's hard to square with strong restaurant purchases (+0.9% M/M). There is some signal of potential tariff front-running here, with strong performances in December for autos, sporting goods, funiture and building materials reversing sharply in January.
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US INFLATION: Core PCE Estimates Tilt Lower After CPI Report
Some post-CPI core PCE estimates below - while not all had pre-CPI/PPI forecasts, it's pretty clear that CPI points to a slightly softer figure than seen coming into this week and certainly after PPI (pre-PPI it was around 0.20%, post-PPI it looked to be closer to 0.25%, now looks to be back to 0.20% or the high 0.10s%).
December Core PCE % M/M ests (0.11% prior):
- Wells Fargo 0.21%
- Nomura: 0.205% (had been 0.272% pre-CPI, post-PPI)
- HSBC: 0.2% (rounded)
- Cleveland Fed nowcast: 0.189% (had been 0.23% pre-PPI and pre-CPI)
- JPM 0.186%
- Morgan Stanley: 0.166%
US-RUSSIA: Treasury Announces New Measures On Russia To Curb Sanctions Evasion
The US Treasury Department has announced a raft of new sanctions on financial institutions determined to aid Russia in evading US-led sanctions or supporting Russia's military-industrial base.
- The measures are part of a major push by the Biden administration to harden rules against Russia and China before President-elect Donald Trump takes office next week. Other measures announced include strict sanctions on Russia's energy sector and an expansion of export controls on semiconductors related to AI to China.
- A Treasury statement notes: "This action targets a sanctions evasion scheme established between actors in Russia and the People’s Republic of China (PRC) to facilitate cross-border payments for sensitive goods."
- The statement adds: "Today’s sanctions also include dozens of companies across multiple countries that continue to support Russia’s efforts to evade U.S. sanctions, particularly in the PRC, which remains the largest supplier of dual use items and enabler of sanctions evasion in support of Russia’s war effort."
- Deputy Treasury Secretary Wally Adeyemo said in a statement: “Today’s actions frustrate the Kremlin’s ability to circumvent our sanctions and get access to the goods they need to build weapons for their war of choice in Ukraine. Today’s expansion of mandatory secondary sanctions will reduce Russia’s access to revenue and goods.”
- The Treasury Dept notes: "...foreign financial institutions that conduct or facilitate significant transactions or provide any service involving Russia’s military-industrial base... run the risk of being sanctioned by [Office of Foreign Assets Control]."
NOK: Supported By Positive Post-US CPI Risk Sentiment And Oil Bid
EURNOK is 0.5% lower today at 11.6650, just above initial support of 11.6627 (Jan 2 low). This level shields 11.6000, a notable pivot level going back to mid-2023, which closely coincides with the December 4 low (11.5998) and the 61.8% retracement of the June-August ’24 rally (11.5953). Positive risk sentiment following the softer-than-expected US CPI report has supported Scandi currencies this afternoon, with today's bid in crude oil futures providing an additional tailwind to the NOK.
- The weak krone was a key factor behind Norges Bank’s cautious stance through 2024, but strength since the December 19 decision keeps the base case of a March cut firmly intact.
- The median forecast of analysts tracked by MNI sees four Norges Bank cuts this year (i.e. once per quarter). This is a little more dovish than the December MPR rate path, which tilts in favour of three cuts.
- Statistics Norway’s Q4 business confidence survey is due tomorrow, the last datapoint ahead of Norges Bank’s January 23 decision. Rates are firmly expected to be kept on hold at that gathering, with last week’s CPI report not delivering enough of a downward surprise to shift consensus.
