Retail sales are expected to rise due to strong auto sales and changing consumer spending patterns.

    by VT Markets
    /
    Aug 15, 2025
    US retail sales are expected to increase by 0.6% from last month, driven by auto sales and rising prices. If we exclude auto sales, the growth is predicted to be 0.3%. This is due to decreased discretionary spending, influenced by a slowing job market and concerns about price pressures from tariffs. If the market aligns with these predictions, it could support a 25 basis-point rate cut in September. Bank of America (BofA) estimates a 0.6% rise in the retail sales control group, leading to a 0.4% increase in real terms, based on CPI core goods data.

    Deutsche Bank Projections

    Deutsche Bank expects strong motor vehicle sales in July, predicting a 1.2% rise in overall retail sales, which is higher than the 0.6% estimate. Without auto sales, they forecast a 0.4% rise instead of the predicted 0.5%. The retail control group is expected to grow by 0.5%. These projections factor in strong results from non-store retailers, benefiting from an extended Amazon Prime Day. The mixed signals from retail sales forecasts further suggest that consumers are weakening, despite a solid headline figure. This is in line with other recent data, such as the July jobs report from early August 2025, which revealed that non-farm payrolls moderated to 160,000, falling short of consensus estimates. This situation strengthens the argument for the Federal Reserve to implement a 25 basis-point interest rate cut at its September meeting. Given this outlook, derivatives pricing will likely continue to reflect the possibility of a rate cut. As of this morning, August 15, 2025, the CME FedWatch tool indicates an 85% chance of a cut next month, a notable increase from just under 70% a week ago. Traders should think about positioning themselves in short-term interest rate futures, such as the September SOFR contracts, to take advantage of this anticipated policy shift.

    Market Strategy Implications

    This environment also supports bullish positions in long-term government bonds, which increase in value as interest rates drop. We saw a similar pattern in mid-2019 when the Fed started cutting rates to guard against slowing global growth, well before any recession was on the horizon. Traders who anticipated the cuts by investing in Treasury futures or buying calls on bond ETFs saw positive results. However, we should remain alert for any unexpected increases in spending, especially from the non-store retail sector, which thrived during the extended Amazon Prime Day event in July. While the recent July core CPI reading dropped to an annual rate of 2.8%, allowing the Fed to ease policy, any surprising inflation or job data in the upcoming weeks could quickly challenge the narrative of a rate cut. This makes options strategies that can benefit from rising volatility a wise consideration. Create your live VT Markets account and start trading now.

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