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US: Another strong retail sales report is in the cards for October - TDS

Analysts at TDS believe another strong US retail sales report is in the cards for October, with headline sales rising 0.3% on a solid 0.4% in the core control group.

Key Quotes

“The August-September hurricanes that propped up spending in September, specifically for autos, grocery stores and restaurants, and building materials, have scope for a sustained tailwind into October. New vehicle sales should be only a modest drag as the reported figures showed a smaller-than-expected moderation (18.0m vs 18.5m), suggesting a solid landing for Q4 consumer spending. Gasoline station receipts should also lend a negative contribution on lower gasoline prices. We expect the report to reinforce Q4 real PCE tracking estimates near a 2% pace.”

Foreign Exchange

  • Our expectations for retail sales and CPI should, on balance, not deliver much impact for the USD. Despite this however, we think a data surprise—particularly on inflation—will not go unnoticed by G10FX markets. Here, we note that we see upside risks to the headline inflation print, but, as long as core remains in line with consensus we do not see the USD responding in kind.
  • Further, we think this will hold limited implications for Fed hike prospects in December. Against this backdrop, and given that US data surprises have been on a tear relative to other majors, we think risks are somewhat asymmetric (to the downside) for the USD should CPI disappoint. We think this could gain additional traction as prospects for passage of tax reform this year remain low in our view. We watch 1.1780 in EURUSD and 112.95/113.10 in USDJPY as key litmus tests for the USD.”

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