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How y’all doing, forex friends! Canada will be releasing its retail sales report tomorrow at 1:30 pm GMT. So if you need to read up on what happened last time and what’s expected this time around, then today’s Event Preview is just what you need.

What happened last time?

  • Headline retail sales m/m: +0.2% vs. +0.7% expected, +1.6% previous
  • Core retail sales m/m: +1.6% vs. +0.9% expected, +0.8% previous

In last month’s Event Preview, I pointed out that leading indicators were pointing to stronger consumer spending and concluded that both the headline and core readings were likely to come in better-than-expected.

Well, that conclusion was only half-right since Canada’s November retail sales report showed that the core reading printed a solid 1.6% month-on-month increase, soundly beating expectations for a 0.9% rise.

But at the same time, Canada’s headline retail sales only increased by 0.2% month-on-month, missing the consensus that it would increase by 0.7%.

The weakness in the headline reading was mainly due to the 3.6% decline in sales reported by motor vehicles and parts dealers, as well as the 1.0% decline in sales from food and beverage stores.

Sales from motor vehicle and parts dealers are excluded from the core reading, though. And that, plus the fact that 6 of the 10 remaining retail store types saw an increase in sales, are the reasons why the core reading exceeded expectations.

Overall, Canada’s retail sales report was mixed. The core reading greatly impressed, however, so buyers initially began to win out.

Overlay of CAD Pairs: 15-Minute Forex Chart
Overlay of CAD Pairs: 15-Minute Forex Chart

Unfortunately for Loonie bulls, NAFTA talks were ongoing at the time. And Trump’s threat that if NAFTA talks don’t work out, then the U.S. will “terminate it” was weighing down on the Loonie at the time.

The Loonie did see buyers later, though, thanks to news that Canada and Mexico were optimistic that talks will work out, as well as Trump’s more conciliatory tone during a CNBC interview.

What’s expected this time?

  • Headline retail sales m/m: -0.1% to 0.0% expected vs. +0.2% previous
  • Core retail sales m/m: 0.0% to +0.1% expected vs. +1.6% previous

For tomorrow’s retail sales report, there’s no true consensus among economists, but forecasts generally fall between a 0.1% downtick or a flat reading for the headline retail sales reading.

Projections for the core reading, meanwhile, fall between a flat reading or an anemic 0.1% increase.

In any case, there’s an implied consensus that consumer spending weakened in December and that weaker non-vehicles sales would be the main drag since the core reading is expected to drastically slow down after printing a solid 1.6% increase previously.

Okay, but what do the leading and related economic indicators have to say?

  • Canada’s December jobs report shows that payroll numbers in the wholesale and retail trade industries increased by 3.9K in December.
  • However, the January jobs report showed that the wholesale and retail trade industries later shed 0.8K jobs in January.
  • Wholesale trade in Canada also fell by 0.5% month-on-month during the December period. And the decline was broad-based since 5 of the 7 sub-sectors reported declines in sales. It’s also worth noting that wholesale trade of vehicles and parts fell by 1.4% (+0.4% previous).
  • Finally, the December trade report shows that imports of all consumer goods only rose by 0.9%, which is weaker compared to the previous month’s +2.6%. Imports of motor vehicles and parts also weakened from +7.6% to +1.8%.

Overall, the leading and related economic indicators are pointing to a general weakness in retail sales, which supports the implied consensus that retail sales weakened in December.

However, the wholesale sales report also showed that sales of vehicles and parts weakened while Canada’s trade report shows that imports of vehicles and parts slumped.

The leading indicators therefore also point to a weaker headline reading, which is contrary to the implied consensus that non-vehicle sales will be the main drag on retail sales.

Anyhow, let’s now take a look at historical tendencies for additional clues, shall we?

Well, the consensus that December’s headline and core retail sales readings both deteriorated appears to have a strong historical basis.

However, economists tend to be too optimistic with their guesstimates for both headline and core readings, resulting in a lot of downside surprises.

In summary, leading and related indicators are pointing to weaker consumer spending in December which is in-line with consensus as well as historical trends.

However, the leading report also show weakness in vehicle sales, which is contrary to the implied consensus that non-vehicle sales will be the main drag on retail sales.

Regardless, economists are apparently an optimistic lot since they have a rather strong tendency to overshoot their guesstimates, resulting in far more downside surprises.

Probability therefore appears to be skewed more towards a downside surprise for both headline and core readings. But as always, just remember that we’re playing with probabilities here, so there is always a chance that the actual reading will surprise to the upside instead.

In any case, just keep in mind that traders usually (but not always) have their sights on the headline reading. Although the core reading does grab traders’ attention from time-to-time when the reading is really impressive (such as last time) or really disappointing.

Also, it looks like the Loonie has been taking some directional cues from oil again, so you may also want to keep an eye on oil prices as well.

And if you didn’t know, you can check out oil prices at our Live Market Rates page.