Core Viewpoint - The U.S. retail sales data for July 2025 shows a month-on-month increase of +0.5%, aligning with expectations, while the previous month's figure was revised from +0.6% to +0.9%. Core retail sales, excluding automobiles and gasoline, increased by +0.3%, also meeting expectations, but down from a revised +0.8% in June [2][4]. Market Reaction - Following the release of retail data, the Dow Jones, S&P 500, and Nasdaq indices exhibited mixed performance, changing by +0.08%, -0.29%, and -0.40% respectively. The 10-year U.S. Treasury yield rose by 4 basis points to 4.33%, while the 2-year yield increased by 1 basis point to 3.75% [3]. Analysis of July Consumer Data - The decline in July retail sales is attributed to the expiration of tariff exemptions on July 9, prompting consumers to make early purchases in June, which inflated that month's sales growth to +0.9%. As the tariff impact subsided, July's growth fell to +0.5%, indicating a downward trend in the U.S. economy [4][7]. - The July retail sales growth decline, coupled with weakening employment data, suggests a high probability of the Federal Reserve restarting interest rate cuts in the latter half of the year. Market expectations indicate two rate cuts in 2025, with the first anticipated in September [4][21]. Retail Sales Breakdown - In July, various sectors showed differing performance: non-durable goods such as sporting goods (+0.8%), non-store retail (+0.8%), and clothing (+0.7%) performed well, while grocery stores (-1.7%) and electronics (-0.6%) saw significant declines. Overall, automotive sales were a key driver, with core retail growth at only +0.3% when excluding automobiles [11][12]. - Service consumption showed signs of weakness, particularly in the restaurant and bar sector, which declined by -0.4%, while food and beverage stores increased by +0.5% [12]. - Gasoline prices remained stable in July, with average prices at $3.25 per gallon for gasoline and $3.78 for diesel, contributing to a +0.7% increase in gas station sales [13]. Federal Reserve Rate Cut Expectations - The decline in retail sales and weak employment data point to a continued downward trend in the U.S. economy, increasing the likelihood of the Federal Reserve implementing interest rate cuts. The CME Fedwatch tool indicates a 92.1% probability of a 25 basis point cut in September 2025, with a second cut in October at 55.2% [21][22].