Signs the US consumer is holding up boosts US stocks

Stock index futures in the US are poised to open higher and extend Friday’s recovery rally, after a mixed US retail sales report. At the headline level, retail sales were disappointing, they rose 0.2% vs. an expected increase of 0.6% for February. However, the control group for retail sales saw an increase of 1% last month, eroding the -1% decline in January. The result for the control group of retail sales has a closer relationship to US GDP, so this data may go some way to assuage concerns about US growth. The sharp decline in consumer confidence in the US, suggested that consumption could fall off a cliff, however, the real economic data is not as pessimistic, which could fuel another leg in the US stock market recovery rally, which is once again being led higher by the US tech sector.

One piece of economic data will not be able to sustain a recovery rally in US stocks for the long term, in our view, and the recovery could remain fragile in the coming days as we lead up to some key event risks. The latest Atlanta Fed GDP NOW GDP estimate for Q1 will be released later on Monday, the last estimate saw GDP plunge to -2.4%, a far cry from the 2.3% gain in Q4 2024. The market may want to see an improvement in this figure later today.

US consumers talk down their spending habits under Trump

Financial markets are sensitive to recession fears in the US, however, US equity index futures have risen on the back of the retail sales report, as they grab at good news after a raft of weak sentiment data. There is a lot of change going on in the US at the moment. Change can be hard for people to digest, which may explain the weakness in sentiment, which could be far worse than the actual economic data. Thus, since concrete retail sales were not as bad as some had anticipated, this could be a rallying cry for US assets.

Dollar and stock market recovery hopes grow  

On the back of the retail sales reports, US index future shave risen to positive territory, erasing earlier weakness in the Emini futures. The dollar is also bouncing off earlier lows, although the dollar is the weakest currency in the G10 FX space so far on Monday. EUR/USD’s flying start to the week has come off the boil, and EUR/USD is now below $1.09. GBP/USD is holding up better than the euro, but it may find some stickiness around $1.30, as it approaches this level. Momentum is still on the downside for the dollar, and one data point may not be enough to sustain a decent rally in US stocks or in the dollar, however, if some doubts creep in about the efficacy of the US recession argument then the pace of declines in US stocks and the dollar could slow, and this could eventually turn into a bottom and then a base for a rally to form.

OECD economic growth forecasts: winners and losers

Growth is likely to remain the focus for some time as the impact of President Trump’s trade wars start to impact the real economy. The OECD has revised down its forecasts for global growth this year. It expects global GDP to rise by 3.1% this year and 3% next year, the OECD also sounded cautious about the outlook for inflation, as trade tariffs increase the cost of doing business. The OECD is also looking for the pace of US growth to slow sharply. It is predicting GDP of 1.6% next year, the weakest rate of annual growth (excluding Covid) since 2011.

The impact of President Trump’s tariff policies are set to have a chilling effect on the GDP of Mexico and Canada. The OECD predicts that Mexico will fall into a recession, and its forecast for Canadian GDP has been slashed in half compared to its December forecast.

UK set to outperform in G7

Staying on Trump’s good side regarding tariffs could have benefits for the UK. The OECD now expects the UK’s economic growth to outperform the rest of the Eurozone and Canada this year and next, it is second only to the US’s growth rate. These estimates are the first comprehensive and independent assessment of the impact of the change in US’s trade policies under President Trump. They highlight the massive disruptive influence these are expected to have on the global economy, which explains why volatility is rising, and why growth fears are driving financial markets right now.

However, for today, the US stock market sell off is taking a breather. Stocks in Europe and the US are a sea of green. All is not well with global growth, but for today, the focus is on the US consumer holding up better than sentiment surveys suggested. This could allow US stocks to continue their recovery at the start of this week, although key event risks lie ahead, including the FOMC meeting on Wednesday. For the recovery rally in stocks to continue, the Fed also needs to be optimistic about the US avoiding a recession down the line.