US consumer prices rise less than expected; retail sales flat

NEW YORK (Reuters) - U.S. consumer prices increased less than expected in April, suggesting that inflation resumed its downward trend at the start of the second quarter in a boost to financial market expectations for a September interest rate cut.

U.S. retail sales, on the other hand, were unexpectedly flat in April as higher gasoline prices pulled spending away from other goods, indicating that consumer spending was losing momentum.

MARKET REACTION:

STOCKS: U.S. stock index futures gained after the reports.BONDS: U.S. Treasury yields fell, 10-year yield last at 4.359%.FOREX: The dollar slid after both numbers came out. Against the yen, the dollar last traded at 155.24 yen.

COMMENTS:

MARK LUSCHINI, CHIEF INVESTMENT STRATEGIST, JANNEY MONTGOMERY SCOTT, PHILADELPHIA

"After three hotter-than-expected prints on CPI, this month's reading showed comparatively slower inflation against the previous month's reading. This was a better-than-expected news on the inflation front, which will go along way to providing some (comfort) to the concerns that the Fed, that has expressed that perhaps inflation is remaining stickier and disallowing them from resuming a more dovish stance with regard to rate cuts."

"While the headline retail sales number wasn't necessarily bad, it was obviously a miss relative to expectations and was slower than the previous month's reading. The read through on that could prospectively be that perhaps there's some softness in consumer spending that one needs to be alert to."

CAMERON DAWSON, CHIEF INVESTMENT OFFICER, NEWEDGE WEALTH, NEW YORK

"Things are being slightly softer than expectations, which is why yields are falling dramatically and equity prices are up."

"The data effectively says that further rate hikes are off the table and potentially opening the door that the Fed truly desired to start rate cuts may be possible in 2024."

"The retail sales data came in weaker than expected, but not weak enough based on the market reaction. That is a bit disconcerting because we've started to see some signs of weakness within the consumer."

"We don't think the Fed will cut in June. We do get a dot plot in June and that will be very telling. They're going to move from three cuts expected by the dot plot to two, which means that you're looking at second half of the year. Maximum two cuts depending on the data."

"Falling yields are a giving a boost to yield sensitive parts of the market like small caps, which have a lot of refinancing risk and high debt loads on their balance sheet."

DOUG PORTER, CHIEF ECONOMIST, BMO CAPITAL MARKETS, CANADA

"Well, it was for a change almost exactly as expected. The headline number came in a little bit light, but only marginally so, and the core number was right on the button.I would say there's going to be quite a bit of relief on these numbers today because (A) - they did not follow the pattern of the first three months of the year of surprising to the high side and (B)- they weren't a worse than expected after a fairly meaty PPI yesterday."

"So while it's not, a great report by any means....It's better than what we've seen earlier this year and at least a small step in the right direction. I think the market will breathe a sigh of relief on these numbers."

"I would say actually, if anything, if we had a bad report today, we might have seen expectations get pushed even further back into the year like in other words, September might have even been in danger if we had a bad reading today. But I think with a moderate result, it does leave on the table the possibility of two rate cuts this year."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN"Inflation was lower and retail sales were flat. The economy is back on track to lower inflation, but the consumer is feeling the pinch. The consumer paid the price with higher inflation and now the consumer is paying the price with slower activity. Inflation adjusted retail sales haven't been as spectacular as the headline numbers suggest. This past month they were downright ugly. Even the buoyant food and drinking establishments category is losing some air."

JASON PRIDE, CHIEF OF INVESTMENT STRATEGY AND RESEARCH, GLENMEDE, PHILADELPHIA

"What the data does for the Fed is it establishes the first in what they are going to need to be a series of softer CPI reports for them to be able to cut later this year. If there were concerns that they weren't going to cut at all, this just alleviated some of those concerns.""What it doesn't do is put the Fed on a trajectory to begin cutting immediately. They're going to need a couple more reports to get some confidence."

ART HOGAN, CHIEF MARKET STRATEGIST, B RILEY WEALTH, NEW YORK

"The CPI report for the month of April is at the very worst in-line with expectations, and at the very best, no upside surprise, and in certain aspects better than had been anticipated."

"One of the things that started a down draft (in markets) in April was a hot CPI and this one is very much in line. This is not at all a hot read, and markets at some juncture this morning will be celebrating that."

"We haven't made significant progress this year in our battle against inflation... and this is a step in the right direction to get the Fed more comfortable. They have enough data facing them before the September meeting and that may well be the time that they decide to finally pull the trigger and cut rates once."

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

"We didn't have a report that was hotter than expected, it was in line with expectations."

"These numbers indicate that inflation will continue to move downward as we enter the second half of 2024 and it bodes well for at least one rate cut from the Fed by the end of the year."

"The markets are going to welcome this data."

"As long as inflation is moving in the right direction, inching closer to the Fed's target, we'll have one rate cut this year. if the number improves grossly there's a possibility of two rate cuts."

"The retail sales report indication that high rates are beginning to take a bite out of the consumer’s pocketbook."

(Compiled by the Global Finance & Markets Breaking News team)