News Releases to Bank With: The US Core Retail Sales Report
This news item is also known as the Retail Sales ex-Autos Report, because the input from sales of automobiles is taken away from the Retail Sales report. The reason for this is that automobile sales have very wild swings from month to month which tends to distort the underlying data, and so the Core Retail sales figure is deemed to be a better index of consumer spending in the US economy.
The US Core Retail Sales report is an important indicator of consumer spending, which is also an indicator of the state of the US economy in more ways than one. For instance, only consumers with jobs will have money to burn. Therefore if consumers are spending less, it is an indication that they have less money probably as a result of lack of employment. Reduced consumer spending will also hurt retailers and manufacturers very badly. Companies that cannot sell enough of what they produce to make a profit will have to cut jobs to stay afloat, leading to more unemployment, even less consumer spending and more woes for manufacturers. Markedly reduced consumer spending can easily cause companies and retailers to file for bankruptcy, and if this is systemic, it can spell doom for an economy. Many countries experienced this in the period following the global financial crisis and are yet to recover. The US government had to bail out many companies and send money to every American citizen to encourage them to spend more and boost the US economy in 2009. This shows just how important the Core Retail Sales report is.
TRADING THE US CORE RETAIL SALES REPORT
A good Core Retail Sales Number indicates that consumers are able to spend more and this is seen as a positive for the US economy and the US Dollar. A poor Core Retail Sales Number indicates that consumers do not have enough disposable income to spend and this is seen as a negative effect for the US economy and the US Dollar.
The best currency pairs to trade are the Yen crosses because of the risk on/risk-off sentiment attached to them, and the EUR/USD in that order of preference.
Buy the Yen crosses if the actual number comes out at a higher positive deviation than the deviation between the expected and previous numbers.
Sell the Yen crosses if the Core Retail Sales number comes out at a more negative figure than expected, and with a wider deviation than that between the expected and previous numbers . Presently the US economy has been in an upbeat mood with more optimistic consumer sentiment, improved employment numbers and lowered unemployment benefit claims. Any surprises to the downside should trigger a more aggressive move downwards.
The most significant figures for the US Core Retail Sales Report occurred in 2009/2010, which is not surprising given the state of the US economy after the sub prime mortgage meltdown and the subsequent global financial crisis. One of these figures was the 101-pip spike on the GBP/JPY, the highest recorded spike ever. This was for a news item that traditionally has given initial spikes of 45 pips on the average.
You can trade the Core Retail Sales Report in the following ways:
a) Trade the initial spike only if you have access to ultra-low latency news feeds.
b) If you lack access to high frequency trading facilities, trade the post-news retracement.