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Hello, forex friends! If you’re looking for some post-Yellen Greenback action, then heads up because the U.S. will be simultaneously releasing its retail sales and CPI reports for the June period this Friday (July 14, 12:30 pm GMT).

And as always, I’ve got your back if you need a quick rundown on what happened last time and what’s expected this time.

U.S. Retail Sales Report (June)

What happened last time?

  • Headline retail sales m/m: -0.3% vs. +0.1% expected, +0.4% previous
  • Core retail sales m/m: -0.3% vs. +0.2% expected, +0.3% previous

The total value of retail sales fell by 0.3% month-on-month in May, which is a real bummer because the market was expecting a 0.1% uptick (+0.4 previous).

Moreover, this is the hardest month-on-month drop in 16 months and the decline in retail sales was broad-based since 8 out of 13 retail store types reported a fall in retail sales, with the main drags coming from the reported decline in sales from motor vehicles and parts dealers, food services and drinking places, electronics and appliance stores, and gasoline stations.

And since the decline in retail trade was broad-based, the core reading also fell by 0.3% instead of printing a 0.2% increase as expected.

Year-on-year, headline retail sales only increased by 3.8%, which is the weakest annual increase in six months and further adds to the disappointment.

Overall, the May retail sales report look bad on the surface and the details only added to the disappointment.

What’s expected this time?

  • Headline retail sales m/m: +0.1% vs. -0.3% previous
  • Core retail sales m/m: +0.2% vs. -0.3% previous

For the month of June, most economists forecast that the headline value of retail sales will recover a bit by printing a 0.1% month-on-month increase.

In addition, most economists expect the recovery in retail sales to be broad-based since the core reading is expected to show a stronger 0.2% month-on-month increase.

Looking at some of the available leading indicators, total vehicle sales in June climbed by an annualized rate of 16.5 million, which is within expectations but less than the previous reading of 16.7 million.

This will likely weigh down on the headline reading for retail sales. But as noted earlier, the consensus is that other store types will drive the increase in retail sales because the core reading, which exclude sales from motor vehicles and parts dealers, is expected to recover at a faster pace than the headline reading.

Next, ISM’s non-manufacturing PMI for June improved from 56.9 to 57.4. However, anecdotal evidence compiled by ISM showed that “The only industry reporting a decrease in business activity in June is Retail Trade.”

Moving on, the June NFP report printed a 222K increase in non-farm jobs, which is better-than-expected. Furthermore, the retail trade industry added 8.1K jobs after shedding 7.2K jobs previously, which may be a sign of stronger retail trade activity.

Wage growth continues to disappoint, though. Even so, the fact still remains that the 0.2% month-on-month increase in average hourly earnings recorded in June is a tick faster than the +0.1% recorded in May. In addition, the participation rate ticked higher from 62.7% to 62.8%. Hopefully, these translate to higher levels of consumer spending in June.

Finally, the University of Michigan’s Index of Consumer Sentiment slumped from 97.1 to 95.1 in June. This is a seven-month low and puts an end to three consecutive months of ever higher readings. It remains to be seen if this will negatively affect consumer spending, though.

Overall, the leading indicators are pointing to a possible slowdown in retail trade activity, which is contrary to the consensus that there will be a recovery. In fact, the only data points that, well, point to a potential recovery are the increase in retail trade jobs and the slightly faster wage growth in June.

U.S. CPI Report (June)

What happened last time?

  • Headline CPI m/m: -0.1% vs +0.1% expected vs. +0.2% previous
  • Core CPI m/m: +0.1% vs. +0.2% expected, +0.1% previous
  • Headline CPI y/y: +1.9% vs. +2.0% expected, +2.2% previous
  • Core CPI y/y: +1.7% vs. +1.9% expected, +1.9% previous

The headline reading for U.S. CPI fell by 0.1% in May instead of rising by 0.1% as expected, which is obviously rather disappointing.

This translates to a year-on-year increase of 1.9%, which is the weakest reading in six months and marks the third straight month of ever weaker annual readings to boot.

Looking at the details, the main drag came from the energy components, thanks to the 6.4% slump in gasoline prices. However, the energy component was not the only drag since commodities broadly took hits, which is a worrying sign for inflation. The slide in energy prices and the cost of commodities was partially offset by the faster rise in the cost of services.

And that’s why the core reading printed a 0.1% month-on-month increase in May, matching the increase printed back in April. This is still a disappointing reading, though, since the market was expecting a 0.2% increase for the core reading.

Moreover, the core reading only printed a year-on-year increase of 1.7%, which is slower than the consensus that it would match the 1.9% annual increase printed in April.

Overall, the inflation situation in the U.S. during the May period was rather disappointing.

What’s expected this time?

  • Headline CPI m/m: +0.1% vs. -0.1% previous
  • Core CPI m/m: +0.2% expected vs. +0.1% previous
  • Headline CPI y/y: +1.7% vs. +1.9% previous
  • Core CPI y/y: +1.7%, same as previous

For the June U.S. CPI report, most economists forecast that the headline reading will show a 0.1% month-on-month rise after the 0.1% tumble back in May.

However, the year-on-year reading is expected to moderate further from 1.9% to 1.7%.

As for the core reading, it’s expected to print a 0.2% increase, which is an improvement over last month’s +0.1% reading. Meanwhile, the year-on-year estimate for the core reading is expected to maintain the previous months’s annual pace of 1.7%.

Okay, time to take a look at some of the leading indicators. First up are ISM’s manufacturing PMI and non-manufacturing PMI reports.

And sadly, ISM’s prices sub-index for the manufacturing sector slumped from 60.5 to 55.0. But on an upbeat note, the prices sub-index for the non-manufacturing sector jumped from 59.2 to 52.1. And since the cost of services account for about 59.93% of CPI, chances are good that the rise in prices in the service sector was able to offset the weaker rise in prices at the manufacturing sector.

Markit’s PMI reports somewhat affirms the data compiled by ISM. For one, Markit noted in its June manufacturing PMI report that “Factory gate charges also increased at a softer pace, with the latest rise only marginal and the weakest seen for seven months.” This is in-line with ISM’s manufacturing price sub-index.

Markit’s service PMI report, meanwhile, noted that “Average prices charged by US service providers rose for the sixteenth consecutive month in June.” Moreover, Markit pointed out that “The pace of increase in output prices was the fastest in the current sequence of inflation and solid.” This is also in-line with ISM’s own findings.

Overall, Markit and ISM both agree that prices in the manufacturing sector moderates while the cost of services appreciated. And since services account for more than half of CPI, it’s likely that CPI increased at a faster pace in June, so the consensus reading looks about right, at least for the headline month-on-month reading.

How does the Greenback usually react?

Well, better-than-expected reading usually cause the Greenback to jump higher while misses generally result in a selloff.

A textbook example of the latter can be seen when the Greenback got dumped hard after both retail sales and CPI missed expectations last month.

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

Both top-tier reports are usually released simultaneously. And in case the readings come out mixed, then traders usually focus on CPI, namely the month-on-month reading. And it stands to reason that CPI will continue to be the main focus since the latest FOMC minutes did reveal that Fed officials were a bit divided on their outlook on inflation. As such, traders will likely be keeping a very close eye on how inflation develops.