UK DATA: BRC-KPMG Retail Sales: Modest Growth As "Consumers Remain Cautious"
BRC-KPMG retail sales increased a modest 1.1% Y/Y in February, softer than the firm 2.6% print recorded in January driven by the end of New Year sales. More Valentine's purchases than last year were cited in the press release while the CEO of the Institute of Grocery Distributions says "February's volume sales dipped" in the food and drink sector.
- The three months to February average growth of 2.4% (from 1.1% in January), is the highest three-month average since November 2023 - though this will include December's firm reading which was distorted by Black Friday). Also note this is a value rather than a volume index, so these numbers include inflation.
- Food sales rose 2.3% Y/Y, lower than the 2.8% growth in January (which was the highest reading since August). A reminder the ONS food volume sales in January saw their largest rise since March 2020 at 5.6% M/M which retailers had suggested was due to an increase in people eating at home in January- there is a chance of some of this increase being reversed in February.
- Non-food sales moderated the rise in total sales with a flat M/M reading in February from the solid 2.5% growth in January.
- Given the BRC follows the ONS calendar dates, it is likely ONS February retail sales will also soften somewhat as "consumers remain cautious...amidst nervousness about the economy" in combination with the "gloomy weather" (though the Met Office reports February rainfall being below average).
- Looking at the data coverage period given it will include both January and February end of months' there is a potential small upside risk from payday spurred purchases.
- Whilst sales growth was muted across non-food categories, it was boosted by purchases of computing, electronics, furniture as well as jewellery, watches and fragrance (due to Valentine's day). Fashion on the other hand performed poorly due to the "gloomy weather".
- Like-for-like sales rose 0.9% Y/Y (vs 2.5% in January).
- Data covers: 2 February - 1 March
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AUSSIE 10-YEAR TECHS: (H5) Resistance Remains Intact
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.665/851 - High Feb 5 / High Dec 11
- PRICE: 95.575 @ 16:37 GMT Feb 7
- SUP 1: 95.275 - Low Nov 14 (cont) and a key support
- SUP 2: 94.477 - 1.000 proj of the Dec 11 - 23 - 31 price swing
- SUP 3: 94.495 - 1.0% 10-dma envelope
The Aussie 10-yr futures contract continues to trade below the Dec 11 high of 95.851. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish theme. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.
FED: Gov Kugler: "Prudent" To Hold Rates "For Some Time"
Gov Kugler (permanent voter, leans dovish) said Friday that rates were likely to be held for "some time" - making her the latest FOMC participant to express little impetus for a cut in the near-term.
- "The cautious and the prudent step is to hold the federal funds rate where it is for some time, given that combination of factors, given that the economy is solid, given the fact that we haven't achieved our 2% target, and given the fact that we may have uncertainties and other factors that may be pushing up inflation or maybe reducing output and growth into the future."
- "We reduced our policy rate 100 basis points through December, but the recent progress on inflation has been slow and uneven, and inflation remains elevated. There is also considerable uncertainty about the economic effects of proposals of new policies." She noted in a Q&A that inflation has recently "firmed a little bit."
- She noted that the January jobs report is "consistent with a healthy labor market that is neither weakening nor showing signs of overheating,"
FED: Federal Reserve "Earnings" Briefly Go Positive, But Hole Is Still Large
The Federal Reserve posted positive net earnings in the week to Feb 5, the first time it has done so since September 2022. The $0.4B uptick compares with an average of negative $1.3B over the preceding 6 months.
- Technically, this was a less negative "deferred asset". When the Fed "earns" money on its asset holdings after netting out expenses, it remits this money to the Treasury. With the Fed posting negative earnings for the past 2+ years, it is falling in to deeper and deeper cumulative negative earnings, a "deferred asset" which means that until the figure goes back into a positive balance, no remittances are made to Treasury.
- The "deferred asset" is currently $220.8B.
- The variability of earnings is due to the relationship between rates paid on Fed liabilities versus those paid on its assets.
- The post-GFC rise in the balance sheet saw ZIRP policy and a large set of Treasury and MBS holdings, meaning Fed remittances to the Treasury rose from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4%, respectively, in 2015, per St Louis Fed calculations. The 2015-18 tightening cycle saw a pullback in remittances, with about $900B remitted to the Treasury over the course of the 2011-20 period.
- The pandemic balance sheet expansion and return to ZIRP saw remittances pick up strongly again, but they have since pulled back. The 52-week average of weekly remittances has shifted, from showing about $10B in monthly "losses" in late 2023/early 2024, to around $6B on a monthly basis now.
- This reflects first the inversion of the yield curve amid the Fed's tightening cycle, and the slow normalizing of the curve since then.
- Unless the Fed easing goes much further, the Fed is unlikely to transmit cash to Treasury for some time.
