Show Me the Money!!

How come the US always releases important economic reports on Friday, right when European trading session is about to close shop? The non-farm payrolls, the unemployment rate, consumer sentiment surveys, the consumer price index, the gross domestic product… And now, the retail sales report!

Come Friday, we’ll see the results of the US retail sales report covering the month of February. The consensus is that sales at the retail level fell by 0.1%, opposite the 0.5% gain seen in January. However, the core version of the report, which is more closely watched by traders because it excludes volatile items from its computation, is predicted to show a slight 0.1% increase.

Before discussing the possible effects on the dollar’s value of the report, let’s first examine some economic data to see whether consensus would hold or not.
Recent consumer sector data seem to point at a pickup in spending. February’s consumer sentiment reading, based on University of Michigan’s survey, climbed from 72.8 to 73.7. Since this reflects an improvement in financial confidence, consumers could have been more willing to spend since they weren’t so worried whether they’d have enough cash in the future.

Aside from that, the latest non-farm payrolls report revealed that job losses are starting to moderate. Only 36,000 jobs were lost in February, causing the unemployment rate to hold at 9.7%. It seems that no bad news is good news, at least for the US labor market. This may have given consumers extra confidence to begin spending their hard-earned cash.

With these recent developments, I have a sneaky suspicion that we may see retail sales figures come in better than expected. After all, if economic conditions are getting better, what better way to celebrate than by going shopping or eating out?!

While headline data is predicting a decrease of 0.1%, core sales are expected to rise by 0.1%. Since it does not include automobile sales, the anticipated decline in would mostly come from falling automobile purchases, which does not necessarily point to a decrease in sales volume.

Judging from how the market reacted to the last US NFP report, I’ve got a feeling that today’s issue will follow the usual risk appetite or risk aversion scenario as well. Remember that as risk appetite picks up, investors move their money to the higher yielding assets and currencies. The opposite happens when fear arises. There, investors recall their moolah back to the safety of US bonds, which of course, props up demand for the dollar.

But like what I pointed out in my previous blog here, retail sales should come out good but not that great so as to not brew any speculation of a sooner Fed rate hike among investors. Inflation, as we know, measures the change in the general prices of goods and services. And prices do change with a fall or pickup in demand which can closely be gauged in… yes… the retail sales.

“I’ve got a feeling that tonight’s gonna be a good, good night!” … For the anti-dollars, that is. Ha!