How Markets Could React to June Retail Sales Data
The impact of retail sales
Retail sales are a leading indicator for any economy. Equity markets (SPY) (QQQ), bond yields (BND), and forex markets (UUP) tend to react to any surprises in retail sales data. In the equity markets, retail store stocks (XRT) and auto stocks (CARZ) are affected the most. The other asset classes that are more responsive to macroeconomic data react aggressively to any surprises.
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How will bonds and FX markets react?
Bonds and FX markets will likely remain unaffected if the data meet consensus expectations. Markets are expecting core retail sales to rise 0.2% from a 0.3% decline in the previous month. Retail sales for June could rise 0.1% as compared a 0.3% decline in May. Bond market reaction to this data will be interesting because of the Fed. If the retail sales go up more than expected, the Fed will continue its monetary tightening, and this could lead to rising yields and falling bond prices. In the FX markets, the US dollar (USDU) could gain some ground against the Japanese yen (FXY), the euro (FXE), and other currencies. If there is a negative surprise, the opposite reaction could be expected. Investors should remember that the FX and bond markets can react aggressively to any data.
Expectations for June retail sales remain flat with the markets anticipating a 0.1% rise as compared to the previous month. A drop in oil prices could drag gasoline store sales lower, and the minor drop in vehicle sales could also have a negative impact on June retail sales.