US Retail Sales Could Derail NFP Rally

The U.S. nonfarm payrolls (NFP) report for May did not disappoint. On the contrary: it surpassed expectations and may have increased the likelihood of a Federal Reserve rate hike before summer’s end.

U.S. jobs data tends to move the forex market in one direction or other, thus earning a reputation as one of the biggest economic indicators to currency traders. The USD had been on a back foot in June as the American economy continued to show signs of a possible second quarter of sluggish growth. The greenback needed a lift after the purchasing managers’ numbers in manufacturing and non-manufacturing surveys offered only mixed results in a week rife with major economic releases. Optimism for a strong NFP started to gain traction after U.S. unemployment claims and the ADP private payrolls data beat expectations.

Employment has been the strongest pillar on which the Fed has built its case for an economy that can sustain higher interest rates. The NFP validated that thinking although several questions were raised about how transitory the factors were that plagued the first quarter of 2015, and how likely they were to affect the second quarter. What a difference a strong release makes. Now, a rate hike seems plausible once more. June has already been ruled out by Fed Chair Janet Yellen, but September or October could prove to be the moment of truth. September may be more likely given there is a press conference scheduled following the monetary policy statement. The Fed could use the opportunity to address any concerns from investors and avoid any miscommunication. A rate hike this year seems inevitable, even after the International Monetary Fund’s Managing Director Christine Lagarde advised the U.S. central bank to delay tightening its monetary policy until next year.

Frugal Americans Confound Economists

The USD will continue to face significant hurdles such as flagging retail sales that have disappointed all year long, stumping economists who expected the savings consumers accumulated from cheaper food and oil to be spent. Consumer confidence would have also supported that theory with an improving sentiment, yet the reality is that Americans are opting to save or reduce debt, in turn hurting retail sales and further impairing economic growth.

U.S. retails sales are forecasted to be 1.1% after a 0.0% reading last month. Core retail sales, excluding auto, are expected at 0.7% after a disappointing 0.1% reading on May 13.

The University of Michigan’s consumer sentiment survey will be released on June 12. Although the sample is small — 500 people — the results have been indicative of the shifting confidence of the American consumer. Last month the preliminary data came in lower-than-expected at 88.6, only to be later revised to 90.7, but still below the expected 95.8 points. If the U.S. is set to shake off the malaise of the first quarter, both consumer confidence and the living proof of that improved sentiment via spending are needed to see the American economy return to a faster pace of growth.

U.S. economic events to watch this week:

Thursday, June 11

8:30 a.m. — USD core retail sales, month-over-month

8:30 a.m. — USD unemployment claims

Friday, June 12

8:30 a.m. — USD producer-price index, month-over-month

10:00 a.m. — USD preliminary UoM consumer sentiment data

*All times EDT

For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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