US: Retail sales to pick up steam in April, rising 0.4% - TDS

The research team at TDS expects US retail sales to pick up steam in April, rising 0.4% after a 0.2% dip in March.

Key Quotes

“Auto sales, which disappointed again in April, should still provide a moderate boost while gasoline station sales should be negligible to a modest negative. Warmer than normal temperatures suggest a lift to building materials and restaurant spending as well. Outside of these categories, we look for core sales to moderate to a 0.3% increase after a strong showing in March (0.6%), the latter which likely reflected a positive late-Easter effect. Overall, these projections would remain supportive of Q2 real PCE at or just below a 3% pace.”

“Foreign Exchange

Given how well the front-end is priced for a June Fed hike, the risks around a data reaction for FX should be asymmetric and more sympathetic to a disappointment. We would expect this to be a short-lived event and would look to fade a dip in the USD as it seems improbable that a softer data read will be enough to move the Fed away from a hike next month. We think USDJPY will be most vulnerable to the data given its linkage to TIPS BE and broader US fixed income space. So far the pair has struggled to sustainably punch through the 114 handle but has already made a convincing break above trend resistance established from the December 2016 high. We see the 113.00/10 as a key pivot, which may offer a more attractive point for dip buyers.

USDCAD should also be an active currency pair on the data release. Should the pair be contained towards the 1.3750/3800 area before then, we think a softer US data run should see USDCAD vulnerable to a move towards 1.3680/1.3700 and 1.3640/50 supports. We have a fade on a USDCAD rallies stance as we think much of the bad news in the CAD leg is overdone. Moreover, a positive data surprise will have to contend with a rebound in oil prices which we believe has more upside heading into the OPEC decision.”