Consumers got hired, but did they shop?

Impressive monthly jobs data has sowed the seeds of expectation that May's retail sales will be pretty good as well.

Retail sales, expected at 8:30 a.m. ET, are expected to rise 1.1 percent, or 0.7 percent excluding autos, according to Thomson Reuters. That compares with no increase in headline sales last month, and a gain of just 0.1 percent when excluding automobiles.

"This retail sales [data set] will be important because the last one was so weak," said Arthur Bass, COEX Partners managing director. "If they do confirm the nonfarm payrolls, yields could move higher." Bond yields in the U.S. have risen in lockstep with a surge in German rates, but strategists say a batch of improving economic data has also supported the move as it increases expectations the U.S. Federal Reserve will proceed with its first rate hike since moving to a zero interest rate policy in 2008.

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

"Starting with car sales last week, [the move in rates] became fundamental not just technical," said John Briggs, head of strategy at RBS. Cars sold at an annualized pace of 17.8 million in May, the best in 10 years.

The retail sales number is also important ahead of next week's Fed meeting, where the Federal Open Market Committee is not expected to take any action but will look at data with a view toward raising rates later in the year.

"The Fed is geared toward employment and inflation. Inflation, we know has not been there and the core PCE(personal consumption expenditures) that came out last week was not something they're going to get enthused about. Retail sales has been moribund and this is a key number to show whether it was too much snow and the winter doldrums or whether the economy is picking up right now," said Bass

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Stocks rallied hard on Wednesday, retracing some recent sharp losses, with the Dow surging 236 points to 18,000 and the S&P 500 up 25 at 2105.

"[The market] was oversold, and I think we got down to the bottom of the trading range, so a lot of it was technical in origin," said Steve Massocca, managing director at Wedbush Securities. "I think a lot of the decline was created by the move in interest rates, and I think now people think we're not going to see a lot more than we've seen so far as the back up in rates."

Treasury strategists say there could be a pullback in yields, but they should move somewhat higher and trade in a higher range this summer. Treasury yields rose Wednesday, with the 10-year hitting 2.49 percent early in the day, as the German 10-year bund rose above 1 percent.

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The Treasury's auction of $21 billion worth of 10-year notes was at a yield of 2.461 percent Wednesday, the highest since May. Traders are also looking forward to the $13 billion auction of 30-year bonds at 1 p.m. ET Thursday.

What to Watch

Retail sales for May are released at 8:30 a.m. ET.

Other important data include weekly jobless claims, expected at 275,000 when they are reported at 8:30 a.m.

Import prices for May are released at 8:30 a.m., and business inventories are reported at 10 a.m.

Earnings are expected from Bojangles, ExOne, Korn/Ferry and Restoration Hardware.

Facebook holds its annual meeting in Santa Clara, Calif. at 2 p.m. ET.

The Energy Information Administration releases natural gas inventories at 10:30 a.m. ET.

The Treasury Department auctions $13 billion 30-year bonds at 1 p.m.