UBS On-Air: Paul Donovan Daily Audio 'Consumers versus prices'
At a Glance
The desk interprets the recent US retail sales figures as moderately soft, but not alarming, supporting the view that while inflation persists, upcoming revisions may paint a more optimistic picture. Per the full note , credit card data suggests consumer spending remains resilient, implying broader economic stability despite nominal sales dips. This aligns with our observed trends in consumption shifts, particularly the varying impact of luxury versus essential goods. While there is some concern about inflation's role, traders should stay focused on future revisions and overall consumption patterns to gauge market sentiment more accurately.
Key Takeaways
- 01Recent US retail sales data indicated a modest decrease, but underlying trends suggest consumer resilience.
- 02Credit card data reflects continued consumer spending, mitigating panic about the nominal sales drop.
- 03Revisions to the retail sales data could provide a more optimistic view in upcoming releases.
- 04The interplay of inflation and spending patterns may influence trading strategies going forward.
Full Analysis
What the desk is arguing
The desk sees the softer US retail sales data as less of a concern, emphasizing that these numbers are nominal and heavily influenced by inflation. Per the full note , the prevailing inflationary environment should not dissuade optimism, as revisions to these numbers are likely to occur.
Moreover, a focus on shifts in consumption patterns—such as the impact of social media influencers—indicates that overall consumer behavior remains robust. Credit card transaction data corroborates this resilience, showing no immediate panic signals among consumers.
Where it sits in our coverage
Our consensus target for the USD/EUR is 1.075, with a range of 1.04 to 1.12. Notable firms include: - jpmorgan: Targeting 1.10 by March 2026 - bofa: Forecasting a lower target of 1.04 for the same period
This view broadly aligns with jpmorgan, sitting near the upper bound of our consensus range. However, it diverges from bofa, indicating a more cautious approach to U.S. economic data.
How other firms see it
Firms like jpmorgan and citi are aligned in their outlook on modest consumer resilience and ongoing inflation, while bofa takes a more conservative stance based on the sales data presented. This contrasts with their emphasis on potential recessionary signs.
As the figures for retail sales unfold, there will be particular attention on the USD/EUR trajectory and the impact it may have on the Federal Reserve's strategy.
What the calendar says
With no high-impact events scheduled in the coming month, the focus will remain firmly on the evolving economic data from the U.S., particularly revisions to retail sales.
Market Implications
Traders should monitor upcoming revisions to the US retail sales data for potential shifts in market sentiment. Pay particular attention to any movements beyond the support level around 1.075 in USD/EUR, which could signal a change in trend.
From the original
US September retail sales data were old news, but slightly softer. While it is tempting to blame the accelerating US inflation rate, retail sales are nominal numbers and include inflation effects. Pessimism should be limited, however. The numbers will almost certainly be revised.
Related speeches
4 itemsUS retail sales suggest resilience in the face of cost pressures
Per the full note from ING Economics, the recent US retail sales figures indicate a surprising resilience among consumers despite ongoing cost pressures. Retail sales rose 0.5% in September, suggesting that spending remains stable even as inflationary concerns linger. This resilience supports the view that the US economy may maintain its momentum, potentially influencing the Federal Reserve's monetary policy decisions moving forward. Overall, this data adds to the narrative that consumer demand can withstand higher prices, which is vital for keeping the broader economic outlook optimistic in the short-term landscape.
Consumer Checkpoint: Still sizzling
The desk interprets the latest consumer spending data from Bank of America as indicating sustained economic momentum, driven by healthy household finances and a robust appetite for discretionary services. According to the report, total card spending increased by 0.9% month-over-month and 4.5% year-over-year, suggesting consumers are still seeking value despite some moderation in certain sectors. Per the full note, this positive consumer sentiment may bolster the USD, particularly as focus shifts to upcoming labor market data and inflation metrics, which could further influence Federal Reserve policy. With no scheduled high-impact calendar events, this trend appears likely to shape trading strategies in the short term.
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