**Retail Sales and GDP Estimates** Retail sales, excluding autos and gas, rose by 0.7%. This is an increase over the previously revised figure of 0.3%. Categories like clothing, sporting goods, and motor vehicle dealers showed strong sales, though some of these gains may be due to higher import costs. These retail sales numbers are likely to help GDP estimates, with the Atlanta Fed’s GDPNow tracker for Q3 increasing to 3.4%. While the upcoming Federal Open Market Committee (FOMC) decision may not change based on this data, it could spark important discussions about possible rate cuts. Industrial production saw a small increase of 0.1% in August, and manufacturing output grew by 0.2%. The NAHB housing market index held steady at 32 for September, indicating stable sales conditions but a decline in buyer traffic. U.S. stocks began the day on a positive note, boosted by Oracle’s potential involvement in a TikTok deal, but closed slightly lower. Major indices, including the Dow and S&P, experienced minor declines, which were also reflected in European shares that had larger drops. **Currency and Bond Market Trends** The U.S. dollar faced challenges as key currency pairs shifted. Treasury yields fell, with the 2-year yield dropping to 3.509%. Today’s retail sales report complicates the Fed’s plans. Consumer spending is showing stronger growth than anticipated, making a rate cut tomorrow more difficult to justify. With core PCE inflation remaining around 2.8% for most of 2025, this strong demand could lead the Fed to take a cautious approach to easing. The bond market is pricing in a dovish Fed, as evidenced by the larger drop in the 2-year yield compared to the 10-year. This suggests that derivative traders should consider strategies that might benefit from a dovish surprise, such as buying SOFR futures or call options on Treasury futures. Additionally, a long straddle on 2-year note futures could be a wise tactic to capture market volatility, whether the Fed maintains its stance or opts for a larger-than-expected 50 basis point cut. Create your live VT Markets account and start trading now.

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