The U.S. Commerce Department said retail sales declined 0.3% after edging up 0.1% in July. Sales were up 1.9% from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales slipped 0.1% last month after a similar drop in July. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. The market had forecast overall retail sales slipping 0.1% and core sales climbing 0.3% last month.
In a second report, the Fed said manufacturing output fell 0.4% in August, reversing July's increase. Output was hurt by declines in the production of nondurable goods. While many durable goods industries posted declines of nearly 1% or more, motor vehicle assembly increased.
Manufacturing is grappling with the lingering effects of a strong dollar and lower oil prices. Activity in the sector has also been undercut by an inventory correction. Regional surveys also suggested factories remained on the back foot in September.
In the wake of the dour reports, the Atlanta Fed lowered its third-quarter GDP estimate by three-tenths of a percentage point to a 3.0% annual rate. The economy grew at a 1.1% rate in the second quarter.
The Fed will hold its policy meeting next Tuesday and Wednesday. Fed Governor Lael Brainard said on Monday she wanted to see stronger consumer spending data and signs of rising before hiking rates.
Financial markets are pricing in a roughly 12% probability of a rate hike next week, down from 15% before the data. September rate hike probabilities have been declining since early this month in the wake of a slowdown in job growth in August.
U.S. CPI reading is scheduled for today. We expect an increase in rate to 1.0% yoy in August from 0.8% yoy in July.
We stay EUR/USD long for 1.1390 in the short-term part of our portfolio. No Fed hike next week should support the EUR/USD .
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