Today, the focus is on the US retail sales data for July. Expected figures indicate a +0.5% month-on-month increase, following a +0.6% rise in June. The forecast for retail sales excluding autos is a modest +0.3% month-on-month. The control group estimate is also projected to rise by +0.4%, suggesting ongoing consumer resilience.<\/p>\n
Auto sales and higher prices might particularly influence retail sales figures. Despite these factors possibly hiding a decline in overall consumer spending strength, expectations remain positive. Unless there is a major deviation from projections, the data is anticipated to support the notion of healthy consumer activity.<\/p>\n
Morgan Stanley expects retail sales to surpass estimates, projecting a +0.8% month-on-month rise, partially due to a +3.4% increase in auto sales. They predict a +0.4% rise for the control group, helped by income growth and mild inflation. With a 25 basis points rate cut anticipated for September, ideal results would align with estimates, displaying moderate consumer resilience. This would stabilise the current Federal Reserve outlook without triggering economic concerns.<\/p>\n
With the July retail sales data coming later today, we are watching to see if the US consumer holds up. Markets are hoping for a Goldilocks number, something not too hot and not too cold, which would keep the expected September rate cut on the table. For derivative traders, a report that lands close to the +0.5% consensus could calm market volatility, making strategies like selling short-dated strangles on the SPX index attractive.<\/p>\n
This view is supported by recent economic reports from this summer. The July Consumer Price Index showed inflation cooling to a 2.8% annual rate, and the latest jobs report added a solid but not spectacular 190,000 positions with wage growth holding at 3.9%. This data mix of moderating inflation and a healthy labor market is exactly what justifies the market pricing in a 25 basis point cut from the Fed next month.<\/p>\n
We need to look beyond the headline figure, as a big jump in auto sales could be hiding weakness in other areas. A miss in the control group number, which feeds into GDP, would be a warning sign for us even if the main number looks good. In that case, we might look at buying puts on consumer discretionary ETFs as a hedge against fading consumer strength.<\/p>\n
This situation feels similar to the “insurance cuts” the Fed delivered back in 2019 when the economy was slowing but not collapsing. If today\u2019s report confirms that gentle moderation, implied volatility on interest rate options could fall after the September meeting passes. A smart play for the coming weeks could be positioning for that calm by selling volatility on futures for October expirations.<\/p>\n
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