Release: US Retail Sales (Feb)
Consensus Forecast: 1.1%
Release: Core Retail Sales
Consensus Forecast: 0.8%
Date/Time: 03/13/12 8:30 AM ET (12:30 GMT)
US Retail Sales Expected to Show an Active US Consumer
Expectation for February US retail sales is for a strong pickup in activity as the labor market has improved putting more money in the hands of households and consumers.
The expectation of a 1.1% reading would be the highest since October 2011 and should help to dent the downward slope of the annual pace of retail sales (seen in red above). While part of the gains expected come from robust motor vehicles sales during the month, as well as a pickup in gas purchases due to higher prices, the expectation for core retail sales is for a 0.8% increase – also quite a strong figure.
From Bloomberg: “Sales at retailers like Gap Inc and Target Corp last month beat analysts’ estimates, a sign an improving job market is helping bolster consumer spending, the biggest part of the economy.
Cars last month sold at the fastest pace in four years, led by Chrysler Group LLC and a surprise gain from General Motors. Light-vehicle sales accelerated to a 15 million annual rate, the strongest since February 2008, according to Ward’s Automotive Group.
The retail sales data, which aren’t adjusted for prices, will also reflect increasing gasoline costs. Regular fuel in February averaged $3.56 (Dh13.06) a gallon, or 18 cents more than January, according to AAA, the nation’s biggest auto organisation.”
Therefore we should monitor the breakdown of the retail sales report as stronger spending on discretionary goods would indicate a healthier consumer while higher spending on gas prices can actually limit consumer spending potential.
Can Stronger Spending Sway the Fed?
The key question is what option the FOMC takes next – will it decide to undertake further quantitative easing, decide on a different but less inflationary monetary stimulus, or hold steady as operation twist ends at the end of June.
While labor market data supports the second or third option a strong retail sales report would further the case that further stimulus is not needed at the moment.
Non-farm payrolls have added more than 200,000 jobs over the previous three months in and are showing an upward trend in the labor market.
A positive retail sales report – coming from the right reasons not just higher gas purchases – can have a positive impact on the US dollar similar to the reaction we saw following Friday’s non-farm payroll report when traders and investors priced out further expectations around quantitative easing.
For a look at the EUR/USD pair from a technical perspective: EUR/USD in a Possible Inverted Head and Shoulder; 1.3150-1.3160 is Key Resistance Area
Looking at the US Dollar index we see strength for the Dollar over the last two weeks, but that strength will be tested as it approaches 80.25. A break there open up a continuation of the climb seen in late 2011, this time less on safe haven flows as a result of a deterioration in Europe, and more so on the expectation that QE3 may have a higher hurdle to reach in order to be undertaken.
However a strong retail sales report should also be a positive for equities, usually a USD negative.
The only real analysis here is if equities can climb above and stay above the 2011 highs or will we see sideways trading, or even a pullback.
In the currency markets we can play equity strength by looking at higher-yielding commodity currencies like the Australian, New Zealand and Canadian dollars against another safe haven such as the Japanese yen – all three were weaker so far vs the yen to start the week.
The USD can also benefit against the Japanese Yen, especially if the BOJ sets a dovish tone in its interest rate statement set for the upcoming (Tuesday) Asian session.
For a technical look at the USD/JPY see today’s technical update: USD/JPY is Bullish but Can Be Exhausting as It Nears the 83.00 Handle
At the same time a stronger US economy should help to bolster the prospects for the Canadian dollar as the US is its largest trading partner and Canada posted a drop in its unemployment rate and the BOC upgraded its assessment of the economy which helped to boost its value of the Canadian Dollar in late trading last week.
On the flip side of things, if US retail sales disappoint, it should have the opposite impact on higher yielding commodity currencies, and can weaken them further against both the USD and JPY. The implications for the USD may be slightly uncertain as any drop in equities would support USD strength, while expectations around QE could mitigate USD gains.
On that front, market participants will be awaiting the FOMC interest rate decision coming up on Tuesday afternoon, which may actually limit the reaction to the retail sales report. We’ll preview the FOMC in another article, so check back to FXTimes for that story.
Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.