Today at 8:30am, Canadian Core Retail Sales will come out and let investors know how the consumer retail industry is doing. Consumer retail includes companies such as Wal-Mart WMT, Priceline.com PCLN, and Movado Group MOV. These companies essentially reflect how the average Canadian consumer is spending his money. Canadian retail sales can be analyzed similarly to American retail sales.
Positive retail sales indicates that consumers are deciding to ramp up spending and are confidently using their money, even in the face of uncertain economic times. This indicates to traders that things may be better, after all, and tends to move the equity markets higher. In pre-market trading, the currency will move higher along with equities as well.
This morning, traders will be looking for retail sales to surpass an estimate of 0.4%. If the number is greater than the estimate, the Canadian Dollar will immediately move higher, and barring unforeseen European news or other macroeconomic news, will set the stage for the Canadian equity markets.
Long-term investors should also keep in mind the retail sales from the prior period. Retail sales come in every month, so long-term investors should keep track of monthly snapshots of the consumer retail sector. Any aberrations or sudden drops could mean that consumers are getting skittish about the economy and are refusing to spend money on items not deemed necessary.
Investors should also keep in mind that the holiday season may artificially bolster trends. If investors see a sudden drop in January sales, they should not assume the economy is extremely bearish. However, if investors see a sudden drop this morning, then there may be underlying problems affecting consumer retail.
Consumers have a few options when it comes to understanding the US economy. The advanced retail sales number is one indicator that could help investors gauge where the economy is heading into the future. Investors should also keep up with the news to stay on top of major developments that move markets.
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Bullish View:
Traders who believe that Canadian Retail Sales will be positive might want to consider the following trades:
- Long a bullish Canadian ETF in the pre-market. An ETF such as the iShares MSCI Canada Index EWC would serve well for this cause; you could also purchase options after market open if Canadian news is continuously bullish. If you go with the options strategy, you could purchase a straddle just to reduce risk associated with the bet.
- Short the US Dollar/Canadian Dollar currency pair, which will move lower due to a stronger Canadian dollar.
- Crude oil tends to move with the Canadian Dollar, so a positive CAD bet would warrant a long bet on crude.
Traders who believe that Retail Sales will not be positive may consider the following positions:
- Short Canadian Dollar futures. The futures market typically relies on technical analysis for entry and exit points, so identifying the next support level may be useful.
- Long the US Dollar against the Canadian Dollar, which will move upwards if the Canadian Dollar shows weakness.
- Short crude oil, which will most likely go down along with the Canadian Dollar.
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