A record rise, M/M, in US retail sales in the month of May injected a shot of risk on into the market today.
The headline numbers showed a M/M increase of 17.7% in May, much higher than expectations of a 8% recovery, and more than erasing April’s record -16.4% decline.
The Core number was nearly as impressive, rising at a M/M rate of 12.4% vs expectations for 5.5%, although not quite erasing April’s -17.2% decline.
ING note that “this means that the seasonally adjusted dollar level of US retail sales is back roughly to what we saw in March, which in turn is around 8% below January's level” and that “this is much stronger than the weekly Redbook chain stores sales figures had hinted at, with today’s report clearly boosting hopes of a more V-shaped recovery.”
As a reminder, other tier one data releases have also boosted hopes of a V-shape recovery so far this month. Namely, as well as this much stronger than expected recovery in US retail sales, the US labour market data released on the first Friday of the month revealed that 2.5mln jobs were created in May, against expectations for 8mln jobs to be lost.
Growing expectations for something closer to a V-shaped recovery, rather than a U or L shaped recovery gave risk assets a BIG boost.
For example, US equities rallied hard immediately after the data, with S&P 500 futures flying as high as 3150 from around 3120, before paring roughly half of the move.
However, traders/investors would be wise not to get overzealous in their predictions for a V-shaped recovery.
One key factor that could halt such a recovery could be another wave of Covid-19 cases. Indeed, in many US states, it appears as though the first wave never really ended. California, Texas, Florida numbers continue to trend higher (albeit, yesterday was a little better).
As Fed Chair Powell today stated; we will not see a full economic recovery until consumers are confident that the Covid-19 outbreak has been contained.
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