US Retail Sales Analysis: America's shopping spree could turn stocks down, the dollar up

Doorbuster figures– Americans have not been waiting for Black Friday to swarm shops and buy big. Retail Sales soared by 9.8% in March, smashing estimates, which were roughly half. While the Control Group figures missed with 6.9%, that is still a substantial figure.

Moreover, US jobless claims nearly have nearly stolen the show with a tumble to 576,000, far below 700,000 estimated and signaling a robust labor market. The Philly Fed Manufacturing Index and other statistics also point to a robust economy. 

The initial market reaction is relatively tepid – showing that the "whisper numbers" were higher than what the economic calendar is showing. On Tuesday, elevated expectations for inflation data resulted in a disappointment even though figures exceeded estimates. This time may be different.

The increase in consumption, fall in unemployment applications – and also a multi-year high of 74.4 points in the price components on the Philly PMI – may cause investors to conclude that inflation is coming. Price rises in March may have been subdued, but April and onward may see a drive higher, potentially pushing the central bank into action.

Federal Reserve Chair Jerome Powell pledged ongoing accommodative policy to support the economy, but he did mention tapering bond-buys. He may now have to ramp up his rhetoric. The Fed is buying $120 billion worth of bonds every month and could signal a reduction as early as June. 

If markets begin pricing that in, the dollar may advance in anticipation of the Fed moving sooner rather than later. Fewer printed dollars mean a stronger greenback. The dollar was correcting lower until this publication and may now turn around.

Stock markets could also change course. Robust consumption is positive for a firm's top and bottom lines, and that may be reflected in their projections, which come alongside earnings reports. However, equity markets are not a one-way street.

In recent days, leading American stock indexes have been on the rise, hitting record highs. While the data is positive, fear of higher borrowing costs may trigger a rethink – and a much-needed correction. 

All in all, super-strong and surprising data may serve as the trigger for turnarounds – short or long-lived, time will tell.