Fundamental Fun with Orbex: September US Retail Sales

This weekend is bracketed by two major monthly data releases which are expected to get extra attention this time around: On Friday we have the release of the Michigan Consumer Sentiment Index and on Monday US Retail Sales data. One of the more important, if somewhat slightly superficial, reasons, why traders are going to have more than an eye on this data, is because of the recent selloff in US equities which is garnering a lot of headlines. Also, Friday sees the start of third-quarter earnings season with three major US banks reporting ahead of the session open.

What’s going on?

While there are a lot of factors that come into play with the US economy, obviously, there are two significant issues that are troubling for the markets, and this data is expected to give some insight into how they are impacting the economy.

US-China trade issue: US companies have been expressing concern over the increasing cost of raw materials due to the ongoing escalation in trade tariffs between the US and China. This could crimp corporate earnings, and boost prices. For now, this has been a concern mostly within boardrooms, with consumer sentiment and retail sales remain primarily unaffected. However, given the constant coverage of the issue in the media, and concern over potentially future raising prices, there is an additional concern the problem could bleed over into consumer sentiment and retail sales. This would show the issue is having an impact on the US economy, as well as China’s.

Interest rates: The Fed continues to trim its balance sheet and is seen to maintain it’s tightening cycle. The reduction of “cheap” money is undoubtedly expected to have an impact on stock markets, and President Trump is blaming the current sell-off on the Fed. However, increasing the cost of credit, as well as less available capital for business expansion could also impact consumer confidence and retail sales. However, this hasn’t happened yet, but a sizeable drop in the data could be seen as an indication that the outlook for the economy is not as rosy for the US consumer (the most significant driver of the US economy).

What to look for?

Last month we went over the common considerations of what to consider when it comes to US Retail sales. In addition to that, some things to keep in mind.

Michigan Consumer Sentiment Index (despite some confusion from the name, it covers the whole country; the Michigan part refers to the University that compiles it). The MCSI measures how confident people are in economic activity, specifically whether they are willing to spend money. Consumers willing to spend money is a sign of financial strength, supports stocks and is generally also supportive of the Dollar. But, if the concerns some analysts have voiced about the trajectory of the US economy are creeping into consumer sentiment, we could see the index drop. Current expectations are for an increase to 100.4 from last month’s 100.1

To make matters worse, the MCSI comes out at trading is winding down for the weekend, and with investors looking to keep their positions in safe mode while the markets are closed.

 

On Monday we have:

Retail Sales Ex-Autos: As usual, the headline number getting most of the attention. Expectations are for retails sales to have increased by a further 0.3% in line with last month (this despite the impact of Hurricane Florence). Data way out of line might put some jitters into the market, but that might be tempered as it is an advance number subject to correction later.

Retail Sales: Normally a secondary consideration, analysts who are primarily interested in the potential impact Fed policy might be having on the economy are likely to be taking a keen look at auto sales. Auto sales depend a lot on access to credit, and many analysts have pointed out that loan for car sales is quite over-extended. This data could have an unusually significant impact on the Dollar if it comes in significantly below expectations. Consensus for the moment is for an increase of 0.5%, substantially above the 0.1% of last month.