US retail sales reaction: Bah humbug!

There are no two ways about it: it’s been a slow week for foreign exchange traders. With no top-tier data releases from Europe or the US during the first four days of the week, the US dollar generally consolidated against most of its major rivals over the first 96 hours of this week’s trade.

Today, traders are saying TGIF (thank goodness it’s Friday) for at least two reasons: the traditional end of the workweek and the release of the October US retail sales report, which was billed as the marquee data release of the week. As it turns out, even that report was a bit of a dud both in terms of economic and market activity.

US retail sales rose by a subdued 0.1% m/m in October, well below the 0.3% reading anticipated by economists. The “core” retail sales measure, which filters out more volatile automobile purchases, rose 0.2% m/m, weaker than the 0.4% increase anticipated by economists. In terms of the details, sales declined at service stations and electronics stores, held steady at clothing stores, and rose at furniture stores, restaurants, and especially online stores.

Meanwhile, the concurrent producer price index (PPI) report also came in worse than expected, with producer prices actually declining -0.4% m/m against expectations of a 0.2% rise. The “core” PPI reading, which removes the impact of more volatile food and energy prices also fell, coming in at -0.3% m/m vs. an anticipated gain of 0.1%.

Taken together, these economic reports present more ambiguity for the Federal Reserve heading into next month’s highly-anticipated monetary policy meeting. At this point, the central bank still looks likely to raise interest rates, but if today’s releases are the start of a run of weak data over the next month, the Fed could still push back its long-awaited rate hike. After all, what’s another month or two after nearly 10 years of 0% interest rates.

Market Reaction

The markets took the data mostly in stride, with the US dollar actually strengthening by 10-20 pips across the board. Meanwhile, US equity futures held steady and continue to point to a slightly lower open. The yield on the benchmark 10-year US treasury bond ticked down to 2.28% before bouncing back to essentially unchanged at 2.30%. Both gold and oil turned lower on the day, extending their recent bearish streaks.

While a late day move is still possible, it feels as if traders are eager to put this week to bed and move on to potentially more volatile markets next week.