The United States Redbook Index rose 9% year on year in the week ending 22 May. That compares with a prior reading of 8.1%, pointing to firmer annual growth in tracked retail sales.<\/p>\n
The move marks an increase of 0.9 percentage points from the previous rate. The index is watched as a high-frequency gauge of consumer spending trends in the US.<\/p>\n
We see this latest Redbook number as a clear sign of continued consumer strength. The acceleration to 9% suggests spending momentum is not fading as some had feared. This robust demand is a key pillar for the economy right now.<\/p>\n
This consumer resilience likely puts upward pressure on inflation, a concern given April’s Core CPI still registered 3.6%. Consequently, we believe the Federal Reserve will remain hawkish, pushing back against market expectations for rate cuts. Fed funds futures already show the probability of a September cut has fallen to just 25% over the last few weeks.<\/p>\n
We are looking at call options on consumer discretionary and retail ETFs, such as the XRT, to capitalize on this trend. With the XRT already up over 12% this year, we might use bull call spreads to define our risk. This allows us to participate in further upside driven by strong earnings reports.<\/p>\n
The prospect of higher-for-longer interest rates makes us cautious on fixed income. We are considering put options on Treasury futures to hedge against or speculate on a rise in the 10-year yield back towards the 4.5% level. This is reminiscent of past periods where strong economic data forced the bond market to reprice Fed policy quickly.<\/p>\n
This tension between a strong economy and a hawkish Fed could lead to increased market choppiness in the coming weeks. We view VIX call options as an inexpensive way to hedge our long positions against a potential market sell-off. Any hawkish surprise from the Fed in their next meeting could cause volatility to spike from its current low levels.<\/p>\n","protected":false},"excerpt":{"rendered":"
Redbook jumps to 9%, signaling resilient consumers, keeping Fed hawkish; consider retail calls, Treasury puts, VIX hedges.<\/p>\n","protected":false},"author":87,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[33],"tags":[],"class_list":["post-47843","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t