Cyclical Head Fake

QI TAKEAWAY —  There is still more normalization to trudge through on the retail spending front despite September’s upside surprise. We maintain our staples over discretionary stance in the consumer sector.

  1. U.S. retail sales surprised to the upside in September, seeing a 0.7% MoM gain vs. the -0.2% consensus while July and August saw a combined 0.4% upward revision; in response, equities rallied led by cyclicals, while Treasuries sold off with higher yields in 10s than in 2s
  2. Real retail sales, excluding food services and deflating with the CPI for commodities, saw volume gains of 0.4% MoM in August and 0.2% in September; thus, price increases drove roughly 60% of August’s headline retail sales increase and 75% of September’s advance
  3. Little notice was given to the downside in October’s NY Fed Empire State Manufacturing report, which saw new orders, employees, and hours worked all fall; meanwhile, UMich’s Survey of Consumers saw sentiment fall to its second-lowest level since 2011 in October