"Terrifying Data" Bounces Back Exceeding Expectations! Gold Plummets Nearly $40 in Short Term

U.S. July Retail Spending Increases, Showing Cooling Inflation and Continued Income Growth Driving Household Spending Capacity.

Data from the U.S. Department of Commerce shows that, adjusted for seasonal factors, retail sales increased by 1% last month compared to the previous month. This marks a strong rebound from June, where sales were revised down by 0.2%. Economists surveyed by The Wall Street Journal had previously expected a 0.3% increase in retail sales for July.

There is also good news in the labor market, with initial jobless claims totaling 227,000 people as of the week ending August 10, a decrease of 7,000 from the previous week and below the market expectation of 235,000 people. This marks the second consecutive week of decline, reaching the lowest level since early July. This should further reinforce the view that the July nonfarm payrolls report may indeed have been negatively impacted by Hurricane "Beryl," and the labor market is expected to remain resilient.

Following the data release, gold prices fell nearly $40 in the short term; the U.S. dollar index rose nearly 60 points in the short term; non-U.S. currencies generally fell, with the euro falling nearly 60 points against the dollar; the pound fell more than 60 points against the dollar; the dollar rose 150 points against the yen in the short term, surging over 1% intraday.

Consumer demand showing no signs of collapse may prompt financial markets to lower expectations of a 50-basis-point rate cut by the Federal Reserve next month. Due to mild inflation in July, the possibility of a 25-basis-point rate cut still remains high.

The report indicates that despite rising borrowing costs, a cooling labor market, and uncertain economic prospects, consumers are still holding on. With most of the savings accumulated during the COVID-19 pandemic now depleted, wage growth slowing down, and more Americans turning to credit cards and other loans to support their purchases, questions arise about the sustainability of consumer spending, especially as more people fall behind on payments.

Among the 13 categories in the report, 10 saw growth. In June, car dealerships suffered a cyberattack leading to a significant drop in sales, followed by a rebound in car sales. Sales of automobiles and parts dealers grew by 3.6%, a significant monthly increase; electronics and appliance sales also recorded strong growth.

E-commerce sales saw a modest increase of 1.6%, likely due to Amazon's Prime Day and significant discounts from Walmart and Target.

Building materials, garden equipment, and supplies dealers saw a 0.9% increase month-on-month, showing unexpected strength despite warnings from companies like Home Depot.

Food and beverage store sales grew by 0.9%, indicating stable consumption at grocery stores. Sales at food services and bars increased by 0.3%, showing continued growth in dining out, albeit modest. Health and personal care store sales rose by 0.8%, indicating sustained growth in the industry However, the soft job market, as well as what this means for the biggest driver of U.S. economic activity - consumer spending, is a key factor in the Fed's expected rate cut next month. With the cooling job market and the upcoming presidential election, consumer confidence has been persistently low, overshadowing progress in curbing inflation.

The slowdown in the job market, coupled with recent improvements in inflation, strengthens the Fed's case for a rate cut at the September policy meeting. The July CPI data released on Wednesday showed that the year-on-year growth rate of the U.S. core CPI has slowed for the fourth consecutive month.

Following the July non-farm payroll report showing a fourth consecutive month of rising unemployment rates and slowing hiring, analysts and investors are closely watching for signs that the weakness in the job market may be accelerating faster than expected. Despite an upward trend in initial jobless claims earlier this year, the numbers remain below the levels seen in 2019