September retail sales exceeded all expectations. Overall sales rose by 0.4% and ex-autos and gas sales climbed by 0.7%. The previous month was also revised higher. Weekly jobless claims were also lower than expected.
The data continues to deny the week economy thesis perhaps raising Fed worries that the renewed strength will fuel an uptick inflation.
The market is still suggesting a 25-bps reduction in rates will occur at the November meeting, but the total decrease by year’s end is now around 40 bps, down from about 47 bps before the data was released.
As widely noted, neither candidate has talked about the deficit. Will this change on November 6? Treasury Secretary Yellen stated yesterday that the US spends $1.21 for every $1 collected. This number surges to $1.39 for every dollar collected when interest is added in.
Currently 17% of the US budget is allocated for interest expense. Writing it differently, the Treasury Department states that in 2020 the country spent $345 billion in interest. Today the trailing 12-month interest total is $1.049 trillion. In 2023, total interest expense was $659 billion.
Wow! At some juncture it will impact the bond market. If rates don’t decline as Wall Street is suggesting, the day of reckoning may be sooner rather than later.
Equites staged a nominal advance believing that increased economic activity will squelch the bearish implications of higher interest rates.
Last night the foreign markets were up. London was down 0.25%, Paris up 0.66% and Frankfurt up 0.34%. China was up 2.91%, Japan up 0.18% and Hang Seng up 3.61%.
Futures are bifurcated. Dow futures are down 0.2% and NASDAQ futures up 0.35% as NFLX exceeded expectations. The 10-year is off 10/32 to yield 4.12%.
