Retail data unexpectedly weakens; the U.S. economy is at the edge of a growth slowdown or even stagflation/recession risk—pressure shifts to Trump!

After the retail data was released, overall figures came in unexpectedly weaker. Combined with this week’s CPI + PPI data, this suggests the U.S. economy’s growth momentum is accelerating toward weakness. Both consumer and business inflation-side pressures are cooling, further hurting the odds of a September rate hike.

For now, this set of data is arguably favorable: it will nominally reduce the probability of a September rate hike, weigh on the U.S. dollar, support gold, support falling U.S. Treasury yields, and benefit risk assets.

It’s important to note, as I mentioned earlier, that this data also carries risk:

A growth slowdown or stagflation/recession is only one step away. Energy prices have clearly declined compared with the past few months, and inflation data has also slowed—so stagflation expectations have not directly emerged yet. However, because the retail data is so weak, if energy prices rebound later on and inflation pressure increases, stagflation expectations would emerge. At the same time, recession expectations could also begin to surface.

So the pressure on the U.S. economy lands squarely on Trump. If Trump cannot resolve the Iran issue—keeping energy prices high and even pushing them higher—then the first headache for Trump will be whether the U.S. economy can hold up across the three key markets: equities, bonds, and FX. That said, this is actually friendly toward Iran.

September rate-hike odds further cut:

CME shows the probability of a September rate hike has fallen to 28.8%. There hasn’t been a sharp drop in the probability. The main reason is that earlier Fed commentary from a member of the FOMC emphasized that the Fed is paying more attention to inflation rather than growth. So tonight’s retail data needs to be digested by the market to see whether it can further push the odds of a September rate hike down to below 25%.

Once the probability falls back below 25%, that would be good news for the whole market. But to fully reverse the rate-hike odds, we’ll need to see whether subsequent July PCE and August employment and inflation data can further suppress expectations—and also whether energy prices continue to weaken.

As of now, the probabilities of a rate hike in September, October, and December are all below 50%, and the mainstream view is increasingly weakening expectations of hikes in 2026.

Outlook:

After the data was released, bond markets, the U.S. dollar, and gold all responded with their respective moves. Tonight’s key is to see whether U.S. stocks are pricing in weaker odds of a September rate hike (increasing risk appetite) or pricing in (a risk of) stagflation-like concerns.
#美国30年期国债拍卖收益率创2001年新高