News traders huddle up! Tomorrow at 12:30 pm GMT Uncle Sam will print the U.S. consumers’ retail activity for the month of July.
Think you’re ready to trade the event? Here are a few points that might help:
What happened last time?
- June’s headline retail sales increased by 0.5% vs. 0.4% expected
- June’s core retail sales grew by 0.4% as expected
- May’s headline retail sales upgraded from 0.8% to 1.3%
- May’s core retail sales upgraded from 0.9% to 1.4%
Retail activity remained healthy in June, with both headline and core retail sales coming in and even exceeding analysts’ expectations.
It was upgrades to May’s figures that helped push the dollar higher. Remember that consumer spending (which is mostly led by retail sales) makes up two-thirds of the U.S. economy.
So, with May’s numbers getting upgrades and June’s data showing strength, the bulls had more reason to believe that we’ll see a strong GDP growth in Q2 2018.
The Greenback was see-sawing across the board before the release, but it finally showed intraday strength when traders saw surprise upgrades to May’s retail activity.
What’s expected this time?
- Headline retail sales: +0.3% vs. +0.5% previous
- Core retail sales expected to remain at +0.4%
As you can see, market players are expecting headline retail sales to cool down a bit while core retail activity is expected to maintain its 0.4% growth in July.
Do analysts have reason to expect a lower headline reading? Let’s look at some leading indicators:
ISM’s non-manufacturing PMI experienced a “cooling off” in July. Still, 16 out of 18 industries saw upticks and all components except for supplier deliveries maintained their “growing” status.
A separate consumer survey by the Conference Board reflected waning optimism in July. Turns out, consumers are optimistic over current business and labor market conditions but aren’t as excited in their short-term outlook.
Meanwhile, University of Michigan (UoM)’s survey showed elevated consumer confidence thanks to favorable job and income prospects. However, UoM also noted more concerns over additional tariffs and noted that resolution is “critical” in preventing decreases in discretionary spending.
Last but not the least is the NFP report itself, which showed a net jobs gain of 157,000 against expectations of a 190,000 increase. Wage growth and the jobless rate met expectations, though.
It looks like there’s room for a bit of cooldown in headline retail sales data after all. Do the historicals support this?
What do historicals say?
Past releases aren’t helping this time. As you can see, analysts are about as likely to underestimate headline AND core numbers as they are to overestimate them. Seriously, who pays these guys?!
The most interesting bit out of the charts is that June’s releases tend to get upgraded from their initial readings. And based on how the market reacted last month, significant adjustments could definitely factor in the dollar’s intraday price action.
How can I trade the report?
From what we know from above, we can see that July’s retail sales can easily show a bit of volatility from its previous reading.
A better-than-expected release could push the dollar higher for the rest of the session. A deeper retracement from last month’s growth, however, could support speculations that consumers are more worried about the impact of additional tariffs than they are happy about their job prospects.
If you don’t see any significant hits or misses with July’s numbers, make sure you’re also watching for revisions in June’s retail sales performance.
And if that’s not enough to keep you on your toes, then note that there are other, lower-tier U.S. reports scheduled for release during the same trading session. That means you gotta be extra tight with your risk management!