This week sees the US retail sales release which is likely to cause some volatility on an out-of-consensus print. The miss in US inflation data last week resulted in immediate re-pricing of the Federal Reserve’s interest rate decision for December. After the decision short-term interest rate markets now price in over 70% chance of a 50bps rate hike. Prior to the decision, the market was expecting a 75 bps rate hike in December.

It was this miss in inflation that allowed US stocks to rally out of last Thursday’s weak CPI print. This was an obvious trade for those paying attention to the data and key narratives. So, trading out of the US retail sales print is going to be playing into this narrative of slowing rate hikes. Here is what to expect
US retail sales are expected to fall to 6.9% y/y from 8.2% prior. The trend is generally lower and the USD has been trading cynically recently, so there is no reason to expect that to change in the near term.

Month over month US retail sales are expected to rise to 0.8% from 0% prior. So, the best opportunity will come from a surprise. In this instance, a surprise to the downside or the upside could result in a large market move.

The market moves expected are as follows

On a miss, with retail sales below 5.9% y/y and 0.2% m/m, that should give the Fed more reason to potentially pause rates. That could possibly result in:

  • XAUUSD upside
  • S&P500 upside
  • USDJPY downside

On a beat, with retail sales above 8.2% y/y and 1.6% m/m, that should give the Fed more confidence to not need to pause/slow rate hikes so urgently. That could possibly result in:

  • XAUUSD downside
  • S&P500 downside
  • EURUSD downside

Of course, the market can always surprise in its reaction, so you need to keep that in mind. Also, watch out for revisions as well as the wider risk climate as this can also influence the size of moves.