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Rising consumption rattles markets spooked by inflation

Market commentary by eToro analyst for Romania, Bogdan Maioreanu


Last retail sales data came better than expected throwing a wrench into markets' expectation that central banks will stop hiking interest rates.


The latest data from Romania shows that the GDP in Q3 was 4% higher than the one in the similar period of 2021. While the figure for this year up to the end of September rose 5% more than the same period of last year, the GDP rose 1.3% compared with last quarter. Last year over 58% of the GDP was given by the services sectors and 28% by the industry. The World Bank sees Romania on a strong growth path this year, but it warns that a global slowdown and a possible recession in the main trading partners could impact the growth in 2023.


NBR governor Mugur Isarescu mentioned that we are seeing better than expected dynamics of the GDP but we are also seeing a lot of cars on the streets, expensive vacations abroad signaling that demand is still strong.Though the data was at Q2 this tendency most likely continued as the latest data in September shows that the car sales rose 15% in last 12 months while car related services including maintenance rose only 1.5%.


This tendency of increase in consumption, showed across the ocean too. In the US, retail sales rose by 1.3% in October to $694.5 billion, the US Census Bureau reported on Wednesday. This reading came in better than the market expectation for an increase of 1%. Total sales for the August 2022 through October 2022 period were up 8.9% from the same period a year ago. The markets reacted, S&P 500 index dropping close to 1% and Nasdaq over 1.5%, fearing that strong data will make the Fed continue its interest increase policy longer.


With all this consumption, we are also witnessing a 15% increase in US credit card debt to 930 billion dollars, the highest annual rise in the past 20 years. And this is influencing large retailers' results too, the latest reports showing mixed results based on the type of consumer goods they sell.


Target (TGT) stock price depreciated 13% after the company missed profit estimates and lowered its guidance for the holiday quarter, due to slow down of sales on its discretionary heavy clothing, furnishings, and electronics mix. Walmart (WMT), that is more consumer staples oriented, rose after strong results for Q3 that highlighted a 8.2% jump in US sales and 9.8% increase in revenue to 152.8 billion dollars in the quarter. Guidance was strong too Walmart estimating full year consolidated net sales growth at about 5.6% better than previous 5.06% consensus.


With the holiday season in sight, S&P warns that retailers are likely to face a 1.2% decrease in sales from October to December compared with the similar period of 2021, in net terms when accounting to inflation. Without accounting for inflation, total sales will rise 4.5% over 2021, faster growth than before the pandemic. And this is important as consumer spending accounts for 70% of the US GDP.


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