Much of the last month’s growth in retail trade was due to a sizeable increase in sales of vehicles and parts, which rose by 2.6% m/m. Sales at gasoline stations edged up just 0.1%, weighed down by lower prices at the pump. Sales at the building materials and equipment stores increased for the sixth consecutive month (+0.4%).

Sales in the “control group”, which excludes the volatile components above (i.e., gasoline, autos and building supplies) and is used in the estimate of personal consumption expenditures (PCE), rose 0.3% m/m, an acceleration relative to 0.1% gain in October.

Sales at non-store retailers increased by 1.8% and were up 9.7% on a year-over-year basis, making it the fastest growing category. Online sales continue to increase as a share of total sales, reaching 20% in November. In contrast, sales growth was soft at the general merchandize stores (-0.1%), with weakness concentrated in department store sales (-0.6%).

Food services & drinking places – the only services category in the retail sales report – declined by 0.4%. October’s data was revised up to 0.9% (previously 0.7%).

Key Implications

U.S. consumers are finishing 2024 in strong financial shape. A rally in equity markets and gains in home prices have bolstered household wealth. While job growth has slowed, the labor market remains healthy and continues to generate jobs. Consumer confidence has also improved, especially following Trump’s election victory, with the prospect of lower taxes lifting households’ spirits. For this quarter, we expect inflation-adjusted consumer spending to increase by 3% (annualized), a small step down from 3.5% in Q3 but still strong growth.

Inflation, however, remains an issue. Nominal retail sales are up 3.8% from the year ago but the picture looks less upbeat after adjusting for inflation, with sales up just 1%. The latest uptick in inflation reaffirmed that progress in bringing inflation lower is stalling, and the coming year could bring more inflationary surprises, due to potential tax cuts, tariffs, and changes in immigration policy. These factors would likely prompt the Fed proceeding more cautiously next year, leading to higher interest rates for consumers than otherwise would be the case. Along with a slowing labor market, these are some of the reasons why we expect consumer spending to moderate to a trend-like pace of 2% next year (forecast).

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $69.70 on Wednesday. The WTI price edges lower amid the renewed concerns about Chinese demand. Investors remains cautious ahead of the US Federal Reserve (Fed) interest rate decision on Wednesday. The disappointing Chinese Retail Sales raised concerns about the weakness in consumer spending in China, the world's largest oil importer. “Bearish momentum spawned by the China data destroyed any hopes speculators had of breaking out of the two-month range to the upside,” noted Robert Yawger, director of the energy futures division at Mizuho Securities USA. 

Oil traders await the Fed's final policy meeting of the year on Wednesday. The market has already priced in a 25 basis points (bps) interest rate cut, but the attention will focus on the Fed’s forward guidance regarding rate policy for 2025 and 2026. Any signs of a less aggressive easing cycle by the Fed could boost the Greenback and drag the USD-denominated commodity price lower. A decline in US crude inventories last week might help limit the WTI’s losses. The US American Petroleum Institute (API) weekly report showed crude oil stockpiles in the United States for the week ending December 13 fell by 4.7 million barrels, compared to a rise of 499,000 barrels in the previous week. The market consensus estimated that stocks would decrease by 1.85 million barrels.  

WTI Oil FAQs

What is WTI Oil?

WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.

What factors drive the price of WTI Oil?

Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.

How does inventory data impact the price of WTI Oil

The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.

How does OPEC influence the price of WTI Oil?

OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.

Source: FXSTREET

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[Today's Focus]

Market consensus overwhelmingly for steady rates

The Bank of Japan (BOJ) is anticipated to keep its interest rate steady at 0.25% during its upcoming two-day meeting on December 18-19, the last one for 2024. This decision aligns with the central bank’s cautious approach as it seeks more clarity on domestic wage and spending trends, as well as potential policy changes from the incoming US administration under President-elect Donald Trump.

Low rates and yen weakness

Japan’s interest rates remain the lowest among developed nations due to the BoJ’s long-standing policy to support the country’s sluggish economy. Economists see wage growth propelling Japan’s economy towards the BoJ’s 2% inflation target. However, they suggest the BoJ might wait another month to assess wage-driven inflation dynamics, focusing on the positive momentum from next year’s spring wage negotiations and the possible impact from Trump’s trade policies.

Timing of rate hikes in question

The BoJ ended its negative interest rate policy in March and raised its short-term policy target to 0.25% in July. It has signaled its readiness to hike again if wages and prices move as projected and strengthen the conviction that Japan will durably hit 2% inflation. However, the central bank has been cautious about the timing of the next rate hike, leading to fluctuations in market expectations between November and December. Traders are almost entirely anticipating a quarter-point increase by March, as Governor Ueda and his  colleagues have reiterated that they are ready to raise rates again in response to a strengthening economy, increasing earnings, and inflation exceeding the target.

Currency risks: Yen’s influence on BoJ decisions

Currency risks also play a significant role in the BoJ’s decision-making process. Analysts pointed out that the yen’s value against the dollar could influence the central bank’s actions. A stronger US dollar could weigh on the yen and accelerate the BoJ’s policy normalization, while a weaker yen supports Japan’s reflation efforts.

Currently, dollar/yen is easing after six consecutive green days but is standing above the 200-day simple moving average (SMA) at 152.10, which is acting as a strong support level. Any upside pressure may send the market to the three-and-a-half-month high of 156.75. However, a descending move below the 151.10 support and the short-term uptrend line may increase the chances for a bearish retracement.

Source: ACTIONFOREX