Fundamental Fun With Orbex – October US Retail Sales

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Today at 8:30 EST (14:30 CET) the US Census Bureau will publish the retail sales data for the month of October, which coincides with weekly employment data released from the US Department of Labor. Both of these events can be price sensitive and move forex markets; and with a few data series being released at the same time, we could see some market volatility.

Why It Matters

Retail sales are a survey done every month of how much retail outlets have sold in the preceding month and closely resembles total consumer spending. Since the vast majority of the US economy is based on consumers, it’s a good proxy for overall US economic health. An unexpected drop in retail sales can lead to increased inventories and slowing productivity, whereas an unexpected rise in sales could lead to decreased inventories and price hikes, increasing inflation.

The market parses this data based on the economic implications, and not so much the regulatory. Low retail sales imply that US companies aren’t going to be doing so well, so it can drag on the stock market and weaken the dollar. Better retail sales can support the stock market and drag equities higher across the board.

What’s Been Going On Lately

The release of the data this time around comes at the conclusion of the third-quarter earnings season, and the close of summer.

Now, retailers are expected to start gearing up for Christmas sales, a key time for many who only make money during this period.

Earnings during the season came in relatively positive, dispelling the sense of gloom that was weighing on the markets a month ago.

Additionally, companies reported not being too adversely affected by the US-China trade war, with some major companies such as General Motors coming in way ahead of expectations.

As far as the employment data, last month’s NFP came in way above expectations, showing significant job adds (though this figure is likely to be revised again next month). Given the overall encouraging US data for the last month, a positive outlook has likely already been priced in – so volatility would be more expected in a surprise to the downside.

What to Look For

The headline number is Retail Sales Ex-Auto. The exclusion of automotive sales is helpful because they tend to be superficially volatile and hide some of the broader trends in the market.

Last month this data was a bit disappointing, and analysts are hoping for better numbers this time around: +0.5% versus the -0.1% recorded last month.

At the same time with less importance, we have the release of the whole Retail Sales number. Unless there is a major discrepancy with the other data, this number usually doesn’t get much attention. Expectations are for 0.5% versus the 0.1% from last month.

The Retail Sales control group delves deeper into the underlying economy, stripping off not just autos but energy and construction as well. Because this shows a deeper underlying trend, markets looking for a quick move don’t pay as much attention to it. Expectations are for 0.4% versus the 0.5% reported last month.

Finally, we have weekly Initial Jobless Claims, which gives us some direction in where NFP might be coming up. This data is for the number of jobs created in the last four weeks and rolls forward each week.

If the data keeps coming in below last month’s NFP print, it could affirm expectations for a downwards revision. Expectations are for 212K jobs added, compared to the 214K in the rolling month prior.

There is quite a bit of data being released all at once, so you could see the market bounce around a bit while the market processes any potential discrepancy with expectations.

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