The big American data for the day is scheduled for 08:30 EST (14:30 CET) when the Census Bureau releases November retail sales data. The data can move the market including forex, and given that it is one of the last major releases before the extended holidays when most traders will be away from their desks, it could be especially relevant.
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Why the Data Matters
Retail sales are a monthly survey of how much retail outlets have sold in the prior month. The data closely resembles total consumer spending, and as consumers constitute the bulk of the US economy, it’s seen as a gauge of overall economic health.
In general, better retail sales are understood to support the dollar. They shows strength in the economy, despite increasing sales seen as supporting inflation.
Retail sales also impact the stock markets. Lower retail sales have a negative effect on businesses in general, but especially retailers. This can lead the stock market to underperform – which would typically imply a reduced demand for dollars.
However, the US is still seen as a safe-haven, so underperformance in the economy can sometimes counterintuitively lead to a stronger dollar.
The top number to look at is Retail Sales Ex-Auto, which strips the more volatile auto sales component from the data, giving a better look at the underlying economy.
The previous month’s numbers can be revised, which can also move the market if they revision is large or unexpected. Last month, this data came in above expectations, registering the best performance since May and opening the door to revisions to the downside this time around. For now, consensus expectations are more modest at 0.3% vs. 0.7% prior.
Concurrently, there is the release of the slightly less important total retail sales number, which isn’t likely to move the markets unless there is a major discrepancy with the ex-auto number. Expectations are for a 0.2% increase to the 0.8% recorded last month (which also came in way above expectations, leading analysts to suggest it might also be revised downwards.)
Finally there is Retail Sales control group, which strips off autos, as well as energy and construction. This is seen as the core rate of increase in retail sales, and typically isn’t given as much attention by the market as it is by analysts looking at longer trends. The consensus for the control group is an increase of 0.4% vs. an increase of 0.3% last month.
This is the first retail sales data that will include the effect of the drop in crude, and therefore, the prices at the pump. This is likely to drag on retail performance, and analysts will be looking at this segment to see how much an impact it has on the total number.
Normally, retail sales increase in the lead-up to Christmas and can be a reflection of consumer sentiment. When there is broad uncertainty in the economy, Christmas spending is typically muted, which translates into financial markets as a lot of seasonal spending based on credit.
Another factor analysts are going to be looking at is the auto sector given the issues related to financial stability in auto lending. US car dealers showed a further slump in sales in November, and this is likely to be reflected in the retail sales number.
In that vein, concern persists in the housing sector, so the building materials sector will get some extra attention as reconstruction following the summer hurricanes is likely to start winding down during these months.
Generally speaking, over the last few months, retail sales have been largely driven by core sales (even during September’s first negative revised result in a year), which has allowed investors to shrug off momentary volatility in the numbers. As long as that trend remains, it would allow analysts to feel more comfortable about the practical impact of the trade war and rising interest rates.