Today's Market Overview
Today's market has taken a downturn, with a 0.91% drop. The S&P 500 has fallen by 0.84%. Among different sectors, energy is the only one that has risen, by 1.03%. Medicine, non-essential products, and materials have all declined by more than 1%.
US Retail Sales Data in May
The United States announced the May sales data today. The decline is worse than expected. According to the U.S. Department of Commerce, adjusted retail sales in the past two months dropped by 0.9%, far below the expected 0.6% market drop. April's retail sales also dropped by 0.1%, indicating a significant cooling of consumption in the past two months.
However, sales have still increased by 3.3% compared to last year, higher than the current PCE and CPI inflation levels. This shows that actual consumption has increased year-on-year, but has been weak in the first two months. The key question now is whether this weakness is a one-off or represents a larger downward trend.
Analysis of Retail Sales Components
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Car Sales: The biggest drop this time was in car sales, which fell by 3.5%, a major factor contributing to the overall decline in the data.
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Excluding Car Sales: Even after removing car sales, May retail sales still fell by 0.3%, weaker than the expected 0.1% increase. This shows that the softness is not solely due to car sales.
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Gas Station, Shopping Malls, and Restaurants: Gas station sales fell by 2%, shopping mall sales by 0.7%, and restaurant sales by 0.9%. The decline in gas station sales is due to falling oil prices in May, which is not necessarily a bad thing as it means consumers spend less on gas and may have more money for other consumption. However, the decline in trade and food supply related to food consumption may indicate that Americans are either reducing food expenses or cutting back on eating out.
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Control Group Retail: When further excluding cars, construction materials, gas stations, and other volatile items, the so-called control group retail increased by 0.4%, higher than the expected 0% and the 0.1% decline last month. This indicator, which is an input of GDP, better reflects the underlying consumption trend, suggesting that although overall consumption is weak, some basic spending remains resilient.
Impact on GDP Forecast
After this data was released, the GDP forecast for the United States dropped to 3.5%, lower than the previous 3.8%. However, a 3.5% GDP growth rate is still very good, much higher than the previous trend level in the United States. The reason for the weak GDP in the first quarter was mainly due to increased imports, especially in February and March. But this is a one-off phenomenon. When the import crisis is over, GDP has a significant rebound. In the second quarter, companies reduced imports, which also improved the GDP performance.
US-Iran Tensions and Market Reactions
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Initial Threats: Trump posted on social media that the U.S. had fully controlled Iran's airspace and publicly threatened Iran's top leader. This ignited market concerns about the escalation of military conflict. Crude oil prices skyrocketed, with WTI and Brent oil prices rising by more than 3% in the stock market. The U.S. stock market fell, with the Dow Jones Industrial Average falling more than 300 points, and the S&P 500 and Nasdaq falling by 0.8% and 0.9% respectively.
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Iran's Peace Efforts: Iran intended to contact Qatar, Saudi Arabia, and Oman as middlemen to ease the situation with the United States and Israel. The White House also released news that it was considering contact with Iran this week, but Trump later denied this, almost completely closing the dialogue window.
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Market Impact: The market is closely watching whether the United States will intervene from defense to attack. Even if the situation escalates, from a historical perspective, the Middle East situation has a limited impact on U.S. stocks and may be a buying opportunity. The current oil price trend also shows that market participants are still optimistic and do not think Trump's threat will be realized.
Federal Reserve Meeting and Interest Rate Outlook
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Previous Meetings and Uncertainty: In previous meetings, Powell and other officials made it clear that due to the uncertainty of tariffs, the Federal Reserve could wait and see. In the past few months, inflation has been continuously lower than expected, and the labor market has shown some weakness.
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Inflation Expectations: Nick pointed out in an article that the current core concern of officials has shifted from inflation itself to inflation expectations. Although there is currently no real evidence of a significant fall in inflation expectations, the Fed has to be cautious.
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Fed Officials' Views: New York Fed Chairman Williams is worried that inflation is not stable enough. President Bostick of the Atlanta Fed is concerned about the unpredictability of Trump's tariff policy, which may cause continued unease among consumers and enterprises. Even Waller, who has been advocating for a rate cut, has to admit the potential risks.
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Key Observation Points for Tomorrow's Meeting:
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Statement on Tariff Uncertainty: If the Federal Reserve's statement negates the uncertainty of tariffs, it is a green light for a rate cut.
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Economic Forecast and Dot Plot: In the economic forecast, the focus is on the unconfirmed chart at the back. A drop in uncertainty is a positive signal for a rate cut. On the dot plot, although it is not expected that officials will increase the number of rate cuts this year, a more concentrated wind direction is also an unconfirmed signal of a rate cut.
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Powell's Press Conference: If Powell continues to emphasize that the cost of waiting is relatively low, it can be understood as a negative statement. If he emphasizes protecting the economy more, it is a signal that the Fed may take action in the next step.
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Overall, the author believes that tomorrow's Fed meeting is unlikely to have a bad accident. The market originally expected this meeting not to have a rate cut, and the rate cut channel is still open in the second half of the year. Unless the Federal Reserve clearly states to close the rate cut window, the market is expected to remain stable.
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Conclusion
That's all for today's content. The author thanks the viewers for their support and encourages them to like the video if they find it helpful.
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