Investors have increased wagers for an outsized 50bp rate cut at the Fed’s policy meeting this week, with more such positioning expected to drive trade today. Those who are still uncertain about how to position will look to the August US retail sales print for fresh clues. According to Bloomberg consensus estimates, it is expected to show a contraction of -0.2% m/m, declining from growth of 1.0% m/m in July. July’s print marked the highest month-on-month growth rate since January 2023 due to a significant improvement in motor vehicle and parts dealer sales. Growth of 3.6% m/m was reported in this category, up from -2.0% m/m in June. A reversal in the vehicle and vehicle parts category will likely drive the expected drop in August’s print. This is reflected in consensus estimates of 0.2% m/m for sales excluding auto in August, down from 0.4% m/m in July. Looking ahead, an interest rate cut by the Fed this week will offer some support to consumer spending, but a slowing US economy will likely offset some of this boost.
On the local front, the only data print scheduled for today is the BER consumer confidence index for Q3. Since reaching a recent low of -25 points in Q2 2023, the BER’s measure of consumer sentiment has gradually improved, reaching -15 points in Q1 2024 and -12 points in Q2 2024. The gradual improvement is welcome, although consumers remain more pessimistic than they were pre-pandemic, and there can be no doubt that ongoing pessimism will weigh on retail and service activity. Given that Q3’s print will be the first since the May elections, it will be watched to see whether any GNU optimism is reflected in consumer sentiment. Additionally, the absence of load-shedding, a stronger ZAR, and expectations for interest rate cuts in the months ahead could all boost consumer confidence. More broadly, however, any uptick in optimism will likely have to be supported by improved policymaking. 2017’s ‘Ramaphoria’ was an example of a strong confidence surge that rapidly eroded due to a lack of policy shift.