US Stocks Surge, Treasury Yields Fall As Fed Signals End To Tightening Cycle

• U.S. retail sales unexpectedly increased by 0.3% in November, signalling a robust start to the holiday shopping season. Following a 0.2% decline in October, this growth is attributed to deep discounting by retailers.
• The rebound in retail sales underscores consumers' resilience, supported by a strong labour market. This positive trend challenges market expectations of an early rate cut by the Federal Reserve, which recently signalled the end of its two-year tightening of monetary policy. This same resilience provides a foundation for the Fed to achieve a soft landing but shows the Fed will likely not cut rates in early 2024.
• Online retail sales rebounded by 1.0%, reflecting a shift away from traditional brick-and-mortar stores. Various sectors experienced growth, such as motor vehicles and parts dealers (0.5%), furniture stores (0.9%), and food services and drinking places (1.6%). However, electronics and appliance outlets saw a decline of 1.1%.
• The stable labour market, evidenced by a drop in initial claims for state unemployment benefits, contributes to economists' expectations of decent fourth-quarter consumer spending and a potential GDP growth rate of 2.75%. Despite concerns about rising unemployment rolls, economists dismiss them as reflecting difficulties in adjusting for seasonal fluctuations.

(Source: Reuters)