• SNAPSHOT: Equities lower, Treasuries down, Crude up, Dollar down, Gold up
• REAR VIEW: US Retail Sales unexpectedly decline; UoM Consumer Sentiment falls more than expected; Bessent said US will implement unprecedented measures on Iran; BoJ said set to be considering accelerating subsequent hikes; UKMTO says a tanker was struck by a drone while transiting outbound through the Strait of Hormuz; AMAT earnings fail to impress.
• COMING UP: Data: Japanese GDP Prelim (Q2), Chinese Activity Data (Jul), Canadian Inflation (Jul). Speakers: ECB's Lane.
• WEEK IN FOCUS: FOMC Minutes, Global Flash PMIs, UK Jobs, Inflation from Japan, Canada and UK. Click here for the full report.
• WEEKLY US EARNINGS ESTIMATES: Retailers take focus with highlights including WMT, HD, TGT & LOW. Click here for the full report.

More Newsquawk in 2 steps:

MARKET WRAP

Stocks were modestly lower on Friday in quiet trade, with the Nasdaq underperforming, while the Russell bucked the trend to close higher and the equal-weight S&P 500 was flat. Sectors were mixed, with Energy outperforming alongside firmer crude prices, while Technology and Health Care lagged.

US data was soft but had little lasting market impact. Retail Sales disappointed, while UoM Consumer Sentiment fell notably alongside declines in both Current Conditions and Expectations. However, 1-year inflation expectations ticked up to 4.3% from 4.2%, while the 5-year remained at 3.3%.

Treasury yields rose in a bear steepening despite the softer data, with no obvious catalyst in quiet trade. Firmer oil and higher near-term UoM inflation expectations may have provided some pressure, while Fed pricing was little changed with a September hold still around 67%.

Crude prices settled higher amid continued geopolitical uncertainty. Bessent said the US will implement unprecedented measures against Iran, while the UKMTO reported a tanker was struck by a drone while transiting outbound through the Strait of Hormuz.

In FX, the Dollar underperformed while NZD led the gains. The Yen briefly strengthened on reports the BoJ could hike as soon as September and accelerate subsequent tightening, before paring the move. Gold also advanced despite higher Treasury yields, supported by the weaker Dollar and continued geopolitical uncertainty.

US

RETAIL SALES (FRI) US retail sales fell 0.6% M/M in July (exp. +0.1%, prev. +0.2%), significantly below expectations, while sales excluding autos declined 0.3% (exp. +0.2%, prev. -0.2%). The details were also soft, with sales excluding autos and gasoline falling 0.2% M/M (prev. +0.4%), while the closely watched Control Group declined 0.4% (exp. +0.3%, prev. +0.4%), pointing to weakness in the component most closely linked to consumer spending in GDP. Looking at the sector breakdown, weakness was led by nonstore retailers (-2.2%), motor vehicle & parts dealers (-1.8%), gasoline stations (-0.9%), and electronics & appliance stores (-0.5%). Conversely, clothing & clothing accessories stores (+1.9%) saw the strongest increase, followed by health & personal care stores (+0.7%), miscellaneous retailers (+0.5%), and food services & drinking places (+0.5%). On an annual basis, retail sales growth slowed to 5.0% Y/Y from 6.7%. Overall, the report points to a notable loss of momentum in consumer spending at the start of Q3, particularly given the downside surprise in the Control Group. Some of the July weakness may reflect a reversal of World Cup-related spending and consumption brought forward into June, although the broad-based softness, including the decline in Control Group sales, suggests this was unlikely to be the sole driver.

UOM: The University of Michigan's preliminary Consumer Sentiment Index fell sharply to 51.0 in August (exp. 54.5, prev. 55.2), ending two consecutive months of improvement, with weakness seen in both Current Conditions at 51.8 (exp. 55.0, prev. 54.8) and Consumer Expectations at 50.6 (exp. 55.2, prev. 55.4). Surveys of Consumers Director Hsu said sentiment fell around 8% on the month, with expected business conditions particularly weak, declining 11% for the short-run and 17% for the long-run, while views of personal finances saw only modest deterioration. Hsu noted the decline was broad-based across demographic and political groups, with particularly large falls among older, lower-income and non-college-educated consumers, who are more vulnerable to an erosion in purchasing power from inflation. Notably, just 8% of consumers expect income growth to exceed inflation over the coming year. On inflation, one-year expectations edged up to 4.3% from 4.2%, remaining well above the 3.4% seen in February before the Iran conflict, while five-year expectations were unchanged at 3.3% for a third consecutive month. Overall, the survey points to a notable deterioration in consumer confidence and the growth outlook alongside still-elevated near-term inflation concerns, although longer-term inflation expectations remained stable.

FED'S GOOLSBEE (2027 Voter) said the US economy and labor market remain broadly stable and that he supported the decision to hold rates steady in July. He cautioned against reading too much into one month of weak retail sales, though continued spending weakness would become a concern. On inflation, Goolsbee said he has been encouraged by recent CPI reports but needs to see more data. He also highlighted two consecutive weak productivity readings, warning that a persistent deterioration in productivity would challenge the narrative that AI is delivering significant productivity gains.

FIXED INCOME

T-NOTE FUTURES (U6) SETTLED 11 TICKS LOWER AT 108-18+

Treasury curve bear steepens in quiet trade despite soft retail sales. At settlement, 2-year +2.2bps at 4.171%, 3-year +2.8bps at 4.247%, 5-year +3.9bps at 4.362%, 7-year +4.5bps at 4.517%, 10-year +4.7bps at 4.696%, 20-year +5.6bps at 5.266%, 30-year +4.8bps at 5.267%.

THE DAY: Treasury yields rose across the curve on Friday, with the long end generally leading the move higher in a bear steepening, although there was no obvious catalyst behind the price action amid relatively quiet trade.

US economic data was soft but had little lasting impact. July Retail Sales disappointed expectations, while the preliminary University of Michigan survey showed a notable deterioration in consumer sentiment. The headline sentiment index fell to 51.0 from 55.2, below the 54.5 forecast, with Current Conditions declining to 51.8 from 54.8 and Consumer Expectations falling to 50.6 from 55.4. However, inflation expectations were less encouraging, with the 1-year measure rising to 4.3% from 4.2%, while the 5-year measure remained elevated at 3.3%. Despite the softer activity and sentiment data, Fed pricing was little changed, with money markets continuing to assign around a 67% probability of the Fed remaining on hold in September.

Oil prices were around USD 1/bbl firmer, potentially providing some modest upward pressure on yields through the inflation channel, although there was little fresh on the geopolitical front and the move in crude was relatively contained. On which, US Treasury Secretary Bessent said they will implement unprecedented measures on Iran and are conducting a maximum pressure campaign against the country, while the UKMTO said a tanker was struck by a drone while transiting outbound through the Strait of Hormuz.

Overall, there appeared to be no single catalyst behind the bear steepening, with the long end underperforming despite soft US data and little change in Fed expectations. The move may instead reflect some position adjustment and continued term-premium pressure at the long end following the recent backup in yields, particularly with the Fed providing little forward guidance on the future policy path.

SUPPLY

Notes/Bonds

• US to sell USD 16bln of 20-year bonds on August 19th and USD 8bln of 30-year TIPS on August 20th; all to settle August 31st
  Bills

• US to sell USD 95bln of 6-week bills on August 18th on August 18th, USD 92bln of 13-week bills and USD 79bln of 26-week bills on August 17th; all to settle August 20th.

STIRS / OPERATIONS

• Fed Hike Pricing via CME Fed Watch: Sept 8.2bps (prev. 8.1bps), Dec 24.2bps (prev 23.1bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 106bln (prev. USD 106bln) on August 13th
• SOFR at 3.62% (prev. 3.62%), volumes at USD 2.932tln (prev. USD 2.943tln) on August 13th
• NY Fed RRP op demand at 0.45bln (prev. 0.725bln) across 1 counterparties (prev. 1) on August 13th

CRUDE

WTI (U6) FUTURES SETTLED USD 1.15 HIGHER AT 82.40/BBL; BRENT (V6) SETTLED USD 1.45 HIGHER AT 88.52/BBL

The crude complex was firmer to end the week, albeit on very light newsflow. Heading into the weekend, Middle East updates were sparse on Friday in typical thin summer trading conditions, as participants seemingly await the next catalyst, whether it be positive of negative, on the US/Iran war. While there was no major update in the Middle East, the notable highlights include Bessent saying they will implement unprecedented measures on Iran and are conducting a maximum pressure campaign against Iran, while the UKMTO said a tanker was struck by a drone while transiting outbound through the Strait of Hormuz. For the record, in the weekly Baker Hughes rig count, oil rigs rose 1 to 455, natgas lifted 4 to 128, leaving the total up 5 at 593. WTI traded between USD 80.71-82.99/bbl and Brent USD 86.20-88.69/bbl.

EQUITIES

CLOSES: SPX -0.18% at 7,785, NDX -0.13% at 30,046, DJI -0.20% at 53,733, RUT +0.56% at 3,070.

SECTORS: Energy +1.36%, Utilities +0.55%, Materials +0.48%, Real Estate +0.36%, Industrials +0.35%, Consumer Staples +0.10%, Communication Services -0.10%, Financials -0.14%, Consumer Discretionary -0.37%, Technology -0.43%, Health -0.60%.

EUROPEAN CLOSES: Euro Stoxx 50 -0.13% at 6,537, Dax 40 +0.51% at 26,433, FTSE 100 -0.21% at 10,750, CAC 40 -0.16% at 8,637, FTSE MIB -0.20% at 53,584, IBEX 35 -0.06% at 20,157, PSI +0.00% at 9,255, SMI -0.64% at 14,382, AEX -0.16% at 1,118

STOCK SPECIFICS:

• Reddit (RDDT) will replace AvalonBay (AVB) in the S&P 500 before trading on 18th August.
• Applied Materials (AMAT): Lofty investor exp. overshadowed solid Q results, strong outlook, & continued strength in AI-related semiconductor equipment demand; BofA cited softer gross-margin leverage and more conservative Q/Q growth guidance behind its PT cut.
• Lam Research (LRCX): Plans to invest > $3bln over the next 5yrs to expand its global R&D laboratory network.
• Apple (AAPL) trains its own AI model for China market with Alibaba's (BABA) support.
• Tyson Foods (TSN) to close or sell 3 US beef facilities as industry struggles.
• Wayfair (W) was upgraded at Bernstein to 'Outperform' from 'Market Perform'
• Sandisk (SNDK) was upgraded at JPM to 'Overweight' from 'Neutral'.
• Paypal (PYPL) is in talks to sell itself to a group that includes Stripe and Advent International, reports WSJ citing sources; possible deal could come in coming weeks, but no guarantee.

FX

The Dollar Index was lower vs. G10 FX peers, albeit in very light newsflow, as disappointing retail sales and prelim UoM for August did little to move the needle. The data did little to impact markets despite the weakness, with money market pricing little changed on the day. Participants are still pricing in a hold with more certainty than a hike following last week's NFP report and soft/in line inflation prints.

All G10 FX saw gains to varying degrees against the Greenback, with the Kiwi and CAD the outperformers and the Yen and Swissy the relative laggards. For the former, it saw choppy price action after another BoJ source said the bank was set to raise interest rates as soon as September. Regarding the BoJ, money markets assign a roughly 80% probability of a 25bps hike in September.

As mentioned, the Kiwi was the best perfomer and pared losses following Thursday's soft inflation expectations survey. Overall, and to avoid sounding like a broken record, currency specific newsflow was thin in summer trading conditions as desks await the next catalyst.