Retail sales sink; Dollar takes a dive

The December retail sales report was less than inspiring. Overall sales fell 0.4% on the month, vs. expectations for an unchanged reading. Sales ex-autos also fell 0.4%, vs. expectations for a 0.1% dip. The weakness was widespread: Vehicles and parts down 0.4% ... electronics stores down 1.9% ... building materials down 2.9% ... clothing down 2% ... sporting goods and books down 2%, and so on. The only standout gains were at health stores (+0.7%) and food and beverage retailers (+0.7%), not exactly suggestive of strong consumer spending.

If there's some good news out there, it's that the Producer Price Index slipped 0.1% vs. expectations for a 0.2% gain. However, the "core" PPI rose 0.2%, in line with forecasts. Further up the pipeline, the intermediate goods PPI fell 0.2% on the headline and was unchanged on the core. The crude goods PPI rose 1% on the headline and was also unchanged on the core.

Long bonds are flying on the news -- up 28/32 on the futures at last count. The dollar is also getting pasted amid expectations this means aggressive Fed rate cuts are signed, sealed, and delivered. The Dollar Index is down 33 bps as I write, with the Japanese yen breaking out to its highest against the greenback since June 2005 (yen futures chart shown above).