Consumer spending in the U.S. fell at a record pace in October as retail sales plunged 2.8% from the previous month despite expectations for a 1.2% decline. Sales excluding the volatile automotive component slipped 2.2% during the month, which continues to reflect a dour outlook for the world’s largest economy. Meanwhile, the breakdown of the report showed that gasoline sales slumped 12.7% from the previous month, which was followed by a 2.5% decline in furniture sales. Economic activity is likely to weaken further as private-sector consumption is one of the biggest drivers of growth, which could lead the Fed to ease policy further over the coming months as policymakers carryout their dual mandate to ensure price stability while fostering economic growth.
September 2008 U.S. Retail Sales
Private-sector spending in the U.S. fell for the third consecutive month in September for the first time since recordkeeping began in 1992 as retail sales plunged 1.2% from the previous month. Fading employment opportunities paired with falling home prices have clearly taken a toll on consumers, and consumers may cutback on spending even further as fears of a global recession intensify. The downturn in consumption has become a growing as private-sector consumption accounts for more than two-thirds of GDP, which suggests that conditions may only get worse before they improve. Meanwhile, the proactive Fed increased their efforts in order to stave off further downturns in the economy as they lowered the benchmark interest rate by 50bp to 1.00%, and could be forced to reduce borrowing costs even further as growth prospects deteriorate
August 2008 U.S. Retail Sales
Retail spending in the U.S. unexpectedly declined for the second consecutive month in August, indicating that higher gas prices paired with fading employment demands are certainly taking a toll on consumers. Private-sector consumption slipped another 0.3% after falling 0.5% in the previous month, and conditions may only get worse as the downturn in the housing sector continues. Meanwhile, retail sales excluding the volatile automotive component fell 0.7% after rising 0.3% in July, signaling that economic activity may remain subdued as consumers cutback on spending. The data highlights that growth concerns have certainly intensified since the first half of the year, which could lead the Fed to a dovish outlook going forward as growth prospects deteriorate
How To Trade This Event Risk
The U.S. dollar may face increased selling pressures on Friday as economists predict retail sales to contract another 2.0% in November, following the record drop during the previous month. Growth prospects for the world’s largest economy has weakened considerably throughout the second half of the year as the country faces its longest recession in over a quarter century, and conditions are likely to get worse as private-sector spending, which accounts for more than two-thirds of GDP, falters. The preliminary growth reading for the third quarter fell to a revised reading of -0.5% from an initial reading of -0.3% as personal consumption slipped to -3.7% from an advanced reading of -3.1%, which was the biggest decline in nearly three decades. In addition, durable goods orders plunged 6.2% in October despite expectations for a 3.0% decline, while chain store sales fell 2.7% during November amid forecasts for a 1.1% contraction. The data continues to reflect a dour outlook for the U.S., and consumers are likely to cutback on spending even further as employment opportunities diminish. Non-farm payrolls posted its biggest monthly decline in 34 years as the economy shed 533K jobs during November, which raised the unemployment rate to a 15-year high of 6.7% from 6.5% in October. Deteriorating fundamentals have certainly heightened the downside risks for growth and inflation, which could lead the FOMC to step up their efforts as policymakers carry out their dual mandate to ensure price stability while fostering economic growth. Meanwhile, Fed Fund Futures are showing that investors have already priced-in a 94% chance that the central bank will lower the benchmark interest rate by 75bp to 0.25%, while they anticipate a 6% chance for a 50bp cut to 0.50%. Despite expectations for a rate cut by the MPC, the U.S. dollar may continue to benefit from its safe haven status as the flight to safety continues.
Setting up for a long dollar trade from the given event risk may not be as clear cut as some of our previous trades as market participants expect demands to weaken at a rapid pace, but nevertheless, forecasts for a 2.0% contraction in spending leaves the door open for an upward surprise. Therefore, we will need to see a drastic improvement in retail sales to set the stage for a short euro-dollar position, and with our expectations at hand, we will look for a red, five-minute candle following the release to confirm a short trade on two lots of EURUSD. We will place our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first half of the trade reaches its target.
On the other hand, retail spending is likely to fall further as consumers face mounting job losses paired with the dour outlook for growth. As a result, a decline of 2.0% or greater would favor a bearish outlook for the greenback, and we follow the same setup for a long EURUSD trade as the short listed above, just in reverse.
DailyFX
Disclaimer
Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.
Posts
No comments:
Post a Comment