U.S. Retail Sales Expected Higher After Holiday

Consumers forecasted to have spent more in December but Market Focusing on How much did Energy savings and a strong USD drove sales higher.

A strong non-farm payrolls (NFP) failed to spark a U.S. dollar rally despite crushing the forecast. In the past the U.S. retail sales data has stopped rallies after missing expectations, but this time around it could spark a more rapid recovery of the USD. Retail sales reports have been mixed but economists still cannot unlock the mystery of the U.S. consumer unwillingness to spend despite major savings on gas and a strong labor market. Consumer spending accounts for two-thirds of the economy.

The worst-case scenario is a repeat of the last year’s disappointing 1 percent loss in the core retail data month over month. The conditions on December 2015 were different with the price oil even cheaper than at the end of 2014 and a stronger USD that could finally loosen the purse string of U.S. consumers. Core retail sales are forecasted at 0.2 percent while retail sales are anticipated to come in lower at -0.1 percent.

Retail sales and the auto excluding core retail sales figures will be announced by the U.S. Commerce Department on Friday, January 15 at 8:30 am EST.

The minutes of the Federal Open Market Committee (FOMC) meeting in December were released and deflated optimism about the 4 rate hikes forecasted by the Fed. The FOMC meeting on the 22 and 23 of January will bring more details, but for now the CME FedWatch tool points to a very low possibility of a rate hike at 90.5 percent that the rate will be kept unchanged. The NFP did have a positive effect if fleeting, when it managed to reduce the odds to 88.1 percent of the rate remaining unchanged.

After the lack of confidence from some Fed members in a clear rate hike path, the pressure will increase on the ECB to act sooner rather than later as Europe continues to fight with deflation. Emerging market turmoil, the weak price of energy and the its own failure to communicate in the December 3 meeting complicates matters for the ECB. The European Central Bank (ECB) will take the stage on Thursday, January 21.

Retailers and credit card processors have posted information that puts the retail sales growth significant and mostly driven by online sales and furniture purchases. There are hints that consumers increased their gas savings this holiday season as crude prices continued to plummet. Given the mild winter in most of the U.S. a strong sales number could boost the USD after a positive NFP failed to move impress the market.

The U.S. Bureau of Labor Statistics will release its Producer Price Index on Friday. Prices are forecasted to fall by 0.2 percent. Excluding food and energy (the most volatile components) the reading is expected flat.

EUR/USD events to watch this week:

Friday, January 15
8:30 am USD Core Retail Sales m/m
8:30 am USD PPI m/m
8:30 am USD Retail Sales m/m
10:00 am USD Prelim UoM Consumer Sentiment

*All times EST