Business

Disappointing inflation and retail sales data has sparked a surge in safe-haven demand for bonds and bullion, and left stocks confused this morning ahead of The Fed statement and press conference this afternoon...

A disastrous morning for US macro data - and yet we are assured by The Fed that a hike is overdue and everything is awesome...

It's not!

Gold and Bonds are well bid...

Pushing 10Y yield to its lowest since Nov 10th...

And Nasdaq jumped on the dovish-inspiring data dump...

This is not supposed to happen...

Headline retail sales tumbled 0.3% MoM in May, the biggest drop since January 2016 (and all the weather-related malarkey that was blamed on).

Core retail sales also dropped the same...

Retail sales less autos fell 0.3% in May, notably worse than the expectation of a 0.1% rise.

Following a hotter than expected Core PPI, all eyes were on today's Consumer Price data (as RBC noted is more important for The Fed than PPI) which gravely disappointed the inflation-hoping crowd. Core PPI printed +1.7% (worse thasn expected 1.9%) and the weakest growth since Feb 2015.

May 2014 was the last time that Core PPI (Ex Food and Energy) was this high...With goods prices dropping but services rising.

But Consumer Price growth is plunging...Headline CPI dropped 0.1% MoM in May

The paradox continues: on one hand stocks continue to anticipate a reflating economy, with S&P futures hitting a new all time high overnight; on the other hand, the weaker dollar and especially Treasury yields are increasingly worried that today's rate hike, the 4th in the past decade, will be another policy error, leading to more curve flattening and eventually a deflationary outcome.

With last Friday's "tech wreck" now a distant memory, this morning the "FOMC Drift" described yesterday, which "guarantees" higher stock prices and a lower dollar heading into the Fed announcement is in full effect, with European and Asian stocks rising for a second day, led by rebounding tech shares, while S&P futures are modestly in the green and stocks on Wall Streets hit a record high overnight.