Lower US Retail Sales

These figures were highly anticipated due to their proximity to the Federal Reserve’s interest rate meeting next week. Last week’s negative non-farm payroll figure made a quarter per cent cut in US rates a virtual certainty, and this drop in ex-auto retail sales has raised market hopes that Mr Bernanke will seize this opportunity to make a half point cut.

The Fed Funds futures market now indicates around a twenty per cent chance of a half point cut. This is a massive test of Ben Bernanke’s acumen and any sign of hesitation to act at one of the most eagerly awaited FOMC meetings for many years could severely undermine market confidence.