ECB: Slightly More Negative GDP Impact From Tariffs/Uncertainty Compared To June

Retail sales have maintained their solid growth pace through the summer, with the Johnson Redbook Retail Sales Index rising 5.7% Y/Y for the week ending Aug 9 (the first retail week of August). That's light vs a targeted 6.2% gain but still robust overall.

• The report notes in the anecdotal section that retailers are planning price increases due to tariffs: "August, much like July, is a transitional month marked by final summer clearance sales and a shift in inventories toward back-to-school merchandise and fall apparel. Sales have benefited from back-to-school sales tax holidays in several states, including Arkansas, Florida, Maryland, Massachusetts, Ohio, Oklahoma, South Carolina, Texas, Virginia, and West Virginia. As retailers begin to report their second-quarter earnings in the coming weeks, they are approaching the second half of the year with caution. They anticipate higher costs due to tariffs and are planning price increases to offset these adjustments. Currently, back-to-school sales have not yet made a significant impact, but this is expected to change as the month progresses."
• If sustained, a reading of 5.7% Y/Y would mean the fastest growth since April. While the Redbook index's growth has typically been higher than the "official" Census Bureau series, current levels would be consistent with Y/Y growth in the latter above 3.5%. We get the July report on Friday, with consensus for overall retail sales at 0.3% M/M (roughly 3.3-3.5% Y/Y).

• CHF trades slightly firmer on the day following yesterday's decision from Trump's White House to stop short of installing import tariffs on gold imports. This should prove a boon to Switzerland following apparent limited progress of the Swiss Washington delegation in trying to achieve more favourable trade terms than the current 39% tariff with the US. Further details on the gold exemption are yet to be published - a White House official told AFP an executive order will be incoming.
• However, more broadly, CHF has been on a downtrend since mid-July, whose most recent leg was underpinned by an apparent easing of geopolitical risk premia following headlines on incoming talks on the Russia - Ukraine conflict. This brought USDCHF to top out at 0.8132 yesterday, having made up most of its NFP losses over the last week. From a technical perspective, initial resistance for the pair stands at 0.8171, the August 1 pre-NFP high, while support would be located at 0.8056, the 20-day EMA.
• Analysts are split on the direction of travel from here. Following late last week's Nomura EURCHF 0.9750 call as well as Westpac targeting 0.5370 AUDCHF (current spot 0.5264), Goldman Sachs yesterday recommended going "tactical short EURCHF with a target of 0.93 and a stop of 0.9475", fading the recent strength in the cross through the June highs for yesterday's close at 0.9438. They think EURCHF is "increasingly dislocated from fundamentals" as "the impact on Switzerland [is] to be less than the headline tariff rate suggests", adding "should tariffs ultimately weigh significantly on European growth, CHF stands to benefit from safe haven flows [...] US-Switzerland trade disruptions are likely close to a peak".

• The longer end price action in Germany which is now weighing on Treasuries, is pushing the Tnotes/Bund spread 3.4bps tighter.
• That spread made a ~153.7bps low on the US NFP, and could now make an attempt at that level, although some Desks will look for the Initial support at 150.00bps.