Compared to the steadily slowing CPI, tonight's release of retail data is more closely watched by the market!

As previously pointed out by Wall Street News, as the downward trend of US inflation further solidifies and the focus of the Federal Reserve shifts from "anti-inflation" to "anti-recession", retail sales have been regarded by the market as a more important indicator than the CPI.

At 8:30 p.m. on Thursday Beijing time, the US Census Bureau will release retail sales data for July. Wall Street expects:

A month-on-month growth of 0.4% in July retail sales, the highest growth rate since April this year, with the previous value remaining flat month-on-month;

Retail sales growth excluding automobiles by 0.1%, lower than the previous value of 0.4%;

Retail sales growth excluding automobiles and gasoline by 0.2%, significantly down from June's 0.8%.

Overall, Wall Street holds an optimistic view on the June retail data, expecting the resilience of consumption to support the Federal Reserve's initiation of an interest rate cut cycle in September.

Bank of America: Beware of Seasonal Adverse Factors

In terms of forward-looking indicators, Bank of America's credit card spending data is highly anticipated. The institution's report shows that the unadjusted total card spending in July decreased by 0.4% year-on-year, but increased by 0.3% month-on-month after seasonal adjustments. This data, when converted to the Census Bureau's retail data, shows a 0.1% month-on-month growth in July retail sales (excluding automobiles), in line with market consensus.

However, Bank of America's credit card spending data also shows some signs of weakness: core retail sales (excluding automobiles, gasoline, building materials, and restaurants) are expected to remain flat month-on-month, the first time in several months that it is lower than the market's general expectations.

A previous article by Wall Street News also mentioned that the credit card delinquency rate in the US exceeded that of 2019 in the second quarter, with over 10% of credit card debt being overdue for more than 90 days.

Bank of America also warned that the June retail data may have received a particularly favorable adjustment due to seasonal factors, however, since such seasonal adjustments are usually cyclical, there may be an opposite, unfavorable seasonal adjustment in July. This could lead to a significant downward revision of the June data.

For example, Bank of America pointed out that the Prime Day promotion in July may have an impact on online retail (non-credit card spending) retail data, but this impact may not have been captured by seasonal adjustments.

What is the Interest Rate Path in September?

After the release of the July non-farm payroll report, the market basically expects the Federal Reserve to cut interest rates by 50 basis points at the September meeting.

As of Thursday morning, the market still expects a rate cut of over 35 basis points in September, and a total cut of 100 basis points by the end of the year.

However, Bank of America believes that this expectation may be too aggressive, as the trajectory of retail sales growth points to an economic "soft landing", and it is expected that the Federal Reserve's rate cuts will be slow and steady.

Bank of America predicts that starting from September, the Federal Reserve will cut rates by 25 basis points each quarter.

After the release of the July CPI data, [FOMC voter and Atlanta Fed President Bostic "turned dovish"](https://wallstreetcn.com/articles/3724173? According to Bloomberg, considering the continuous cooling of the labor market and the lag in central bank policy, the Federal Reserve cannot risk relaxing its policy too late and maintains an "open attitude" towards cutting interest rates in September.

Market Reacts More Strongly to Retail Sales Than CPI

In July, the overall Producer Price Index (PPI) in the United States cooled down, with the first decline in service costs this year, while the Consumer Price Index (CPI) largely met expectations, further solidifying the downward trend in inflation. However, a series of economic data such as the July non-farm unemployment rate and manufacturing PMI have signaled a recession, shifting market focus from "anti-inflation" to "anti-recession".

As a key indicator of consumer spending and overall economic activity intensity, tonight's release of retail sales data will provide clearer economic signals.

As macro volatility trader Shawn Tuteja previously stated:

The narrative has completely shifted to whether the economic slowdown is faster than the Fed's reaction speed, so (i.e., whether the Fed is already behind the curve?), we are more focused on retail data (to be released on Thursday) rather than this month's CPI.

J.P. Morgan has proposed a matrix prediction of U.S. stock market reactions based on CPI and retail sales. With CPI data already released and largely meeting expectations, there are now only three combinations left:

CPI meets expectations and retail sales are strong: This scenario will support a rise in U.S. stocks, as the year-on-year core CPI decline indicates strong consumer activity, economic growth without inflation pressure. Expect the S&P 500 index to rise, with the Nasdaq 100 index underperforming the Russell 2000 index.

CPI meets expectations and retail sales are flat: This is a benign outcome, showing that the economy, although cooling down, still has resilience without new inflation pressures. Expect an overall rise in the stock market, with the Nasdaq 100 index performing similarly to the Russell 2000 index.

CPI meets expectations but retail sales are weak: Market reaction will depend on the extent of the decline in retail sales data. If retail sales remain flat or show negative growth, it will be particularly unfavorable for the stock market. Expect the S&P 500 index to fall, with the Nasdaq 100 index outperforming the Russell 2000 index