The consumer retail sector is one of the few sectors that can help investors identify subtle macroeconomic trends. For the most part, consumer retail companies are driven by consumer demand. In bad economies, private citizens tend to spend less money, while in good economies, they are unafraid of spending more. As such, certain economic data based on consumer retail trends can help investors map out the general economy's future.
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 Coach COH, Deckers Outdoor DECK, and Mattell MAT. These companies essentially reflect how the average consumer is spending his money.
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.
This morning, traders hoped for retail sales to surpass an estimate of 0.2%. Fortunately for the Canadians, core retail sales came in at 0.3%, promptly moving the Canadian Dollar against the US Dollar. Since then, the currency has rallied steadily. Its progress was not impeded by the holistic retail sales number, which met analyst expectations at 0.3%.
Long-term investors should also keep in mind the retail sales from the prior period, which was 0.6%. Retail sales come in every month, so long-term investors should keep track 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. As expected, this is exactly what happened and may simply be a function of reversion in consumers' spending habits.
Consumers have a few options when it comes to understanding the global economy. The coret 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 real-time news in order to stay on top of major developments that move markets.
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Bullish View:
Traders who believe that Core Retail Sales will be positive might want to consider the following trades:
- Long Canadian Equity futures by purchasing shares or call options. If you go with the options strategy, you could purchase a straddle just to reduce risk associated with the bet.
- Long the Canadian Dollar against the US Dollar, which will surely move up if economic numbers are good.
- Crude oil moves positively with the Canadian Dollar, so you may want to be long gold.
Traders who believe that Retail Sales will not be positive may consider the following positions:
- Long the Dollar Index, which is likely to move up if equities go down.
- Short the SPDR Gold Trust GLD, which may move downwards on bad Canadian data.
- Short the Canadian Dollar, which could go down as investors fear that Canada will be worse-off than the United States. Negative retail sales may indicate to investors that Canadian retail sales could be even worse than the United States' sales.
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