U.S. retail sales, January CPI report: What to know this week in markets

Yahoo Finance’s Alexandra Semenova joins the Live show to discuss the expectations for retail sales data, inflation, consumer spending, and key data investors are watching this week.

Video Transcript

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JULIE HYMAN: Economic data, meantime, is front and center this week where we'll not only get the latest inflation picture but also some insight on the state of spending. Here to break down what to expect for this week's retail sales numbers for the month of January and inflation, Yahoo Finance's Alexandra Semenova's with us. Hey, Alex.

ALEXANDRA SEMENOVA: Hey, Julie. So retail sales is kind of in the shadow of the CPI report, but it's still an incredibly important report for investors this week. The headline figure is expected to come in at 1.9% in January, per Bloomberg estimates. That would mark a major rebound from a 1.1% drop during the prior month.

Data from the Commerce Department has shown really, really strong credit card spending in January. However, the magnitude of that strength is partially attributed to a seasonal distortion in the data basically since the start of the pandemic. And consumers have been front-loading their holiday shopping so we don't get the strong figure that we've been getting before in December and then an exceptionally strong figure in January.

So if you look at the past few months from November, December, January, it's kind of leveled out. Still, really strong consumer spending, though. That's how Bank of America explained it. They also attributed the pickup to consumers kind of waiting for post-holiday clearance sales. So that might be lifting the retail sales figure higher this past month.

Another reason for the strong retail number is continued momentum in the labor market. You know, invest-- consumers have jobs, they have more disposable income. That's also driving the number higher. And another thing worth flagging is everyone talks about strength in the labor market is a reason that we might not get a recession this year. But it's also strength in consumer spending that's really been holding up economic momentum. We've seen people still spending money even in the face of inflation and higher interest rates.

BRIAN SOZZI: And speaking of inflation, of course, big CPI. The market is very focused on that and what it may or may not mean to the Fed.

ALEXANDRA SEMENOVA: Yeah, exactly. So stocks have had a strong start to the year and partially-- a reason for that was expectations that, you know, the outlook for interest rates isn't as hawkish as some officials said that it was. Investors thought the Fed might pause and even cut rates this year. But that outlook has really shifted in the past week. One, because of the really strong January jobs report. And two, after Powell's comments last week.

Last week, the CME Group's Fed watch tool, which measures market expectations for the Federal Funds Rate, had rates at the end of the year at 4.5% to 4.75%. That's where they are right now. And in the past week, the highest probability now stands at 4.75% to 5%.

So markets are actually starting to take Fed officials for their word that we're gonna go to 5%, maybe even higher. And tomorrow's CPI report could really assert this more hawkish view. Now, the question is not about the inflation picture not improving, it certainly is. But it's just not improving at the pace and extent that some people have been hoping for.

BRIAN SOZZI: Great analysis here. Alexandra Semenova, appreciate it. Thank you.