At The U.S. Retail Sales Register

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Includes: AMZN, BBY, FDIS, FXD, HD, KR, M, PSCD, RCD, RXI, VCR, WMT, WTW, XLY
by: Interactive Brokers
Summary

Investors in the week ahead will be eyeing January’s advanced retail sales report from the U.S. Census Bureau, after the prior month registered gloomy numbers.

Overall, U.S. economic releases are set to surge in the week ahead, while investors grapple with several uncertainties, including slowing Chinese growth and monetary policy shifts in Europe.

U.S.-China trade negotiations and Brexit developments also remain risk-taking overhangs.

On the corporate front, Bank of America Merrill Lynch will host its annual Consumer and Retail Tech Conference, and in fixed-income, the U.S. Treasury is set to auction new three-, 10- and 30-year government debt.

The U.S. Week Ahead (Mar 11-15)

U.S. economic releases are set to surge in the week ahead, while investors grapple with a long list of uncertainties, including slowing Chinese growth, monetary policy shifts in Europe, as well as trade negotiations and Brexit developments.

Among the host of updates in the U.S., market participants will receive fresh reports on retail sales, inflation, durable goods, new home sales and consumer sentiment.

On the corporate front, Bank of America Merrill Lynch will host its annual Consumer and Retail Tech Conference, and in fixed-income, the U.S. Treasury is set to auction new three-, 10- and 30-year government debt.

The week shifts into gear with—

Monday, March 11

  • Retail Sales (Jan)
  • 3-year U.S. Treasury Note Auction

Investors in the week ahead will be eyeing January’s advanced retail sales report from the U.S. Census Bureau, after the prior month registered gloomy numbers.

Ward McCarthy, chief financial economist at Jefferies, had characterized December’s data as “truly dreadful,” and if taken literally, it would suggest the consumer sector “collapsed” in the month. He continued that the release was “such an outlier and so incongruous with the general trend in consumer spending, holiday consumer sales reports and holiday seasons consumer credit data” that it raised red flags about reliability.

McCarthy added that the results were “sufficiently weak that it will no doubt fire-up the fear-of-recession anxieties that have percolated so many times this cycle.

“From the Fed standpoint, it will also make policymakers more conformable that the ‘patient’ approach to rate policy is appropriate.”

U.S. retail and food services sales for December fell 1.2% from the previous month to US$505.8bn, along with a downward revision for the October 2018 to November 2018 change to +0.1% from +0.2%. Year-on-year in December, clothing and clothing accessories stores were up 4.7%, while food services and drinking places were up 4.0%.

Data collection and processing were delayed for this indicator release due to the lapse in federal funding from the partial government shutdown, which ran from December 22, 2018 through January 25, 2019.

Labor Market Impacts

Meanwhile, the retail sales landscape may be adversely impacted by shifts in labor market activity, after a dismal headline number in February’s Employment Situation report, however a lift in Average Hourly Earnings (AHE) could offset negative effects.

According to the U.S. Bureau of Labor Statistics, total nonfarm payroll positions increased by a paltry 20,000 in February – a punch to consumer confidence – while the unemployment rate fell to 3.8% from 4% in January. Employment in professional and business services, health care, and wholesale trade continued to trend up, while construction employment decreased.

After revisions, job gains have averaged 186,000 per month over the last three months.

While the number of job additions were far below market expectations, AHE lifted by 0.4%, contributing to a 3.4% year-over-year wage figure – better-than-anticipated.

Briefing.com’s chief market analyst Patrick O’Hare noted the uptick in AHE is “good news, as it is a positive underpinning for consumer spending.”

Overall, O’Hare added that the “key takeaway from the report is that the weak payrolls figure will drive thoughts of either there being a shortage of skilled labor that could drive up wages or that it is a sign of a softening job market. In other words, the key takeaway is that it is going to create uncertainty that is going to hang over the market.”

Elsewhere, several economic updates are scheduled as the week progresses, including:

Tuesday, March 12

  • NFIB Business Optimism (Feb)
  • CPI (Feb)
  • API Crude Oil Stocks
  • 10-year U.S. Treasury Note Auction

Wednesday, March 13

  • PPI (Feb)
  • Durable Goods (Jan)
  • Construction Spending (Jan)
  • EIA Crude Oil Stocks
  • 30-year U.S. Treasury Bond Auction

Thursday, March 14

  • Initial Jobless Claims
  • New Home Sales (Jan)

Friday, March 15

  • New York Empire State Manufacturing
  • Industrial Production (Feb)
  • University of Michigan Survey of Consumers (Mar)
  • JOLTs
  • Baker Hughes Oil Rig Count

On the Corporate Front

Tuesday, March 12

Market participants may also glean further insights into the U.S. retail environment, with Bank of America Merrill Lynch’s 2019 Consumer and Retail Tech Conference.

A thick crowd of U.S. companies are slated to attend the event, including Macy’s (NYSE: M), Walmart (NYSE: WMT), Kroger (NYSE: KR) and WW (formerly known as Weight Watchers International – NASDAQ: WTW).

Retailers have generally reported mixed results for the latest quarter, with WW among the casualties.

WW’s shares plunged more than 30%, for example, following their fourth quarter 2018 earnings announcement, while Best Buy’s (NYSE: BBY) stock rose over 15%.

Analysts at Finimize recently noted that WW “hasn’t just changed its name: it’s in the middle of rebranding itself as a wellness company. Either that’s not working so well – or it’s working too well, and its subscribers don’t need it anymore.”

Finimize observed the Oprah-backed company’s profit was “well off its target weight, and it shed subscribers for the third quarter in a row.” WW also said that 2019 wasn’t going as well as hoped, lowering its outlook for the year.

In other news, U.S. electronics retailer Best Buy beat most analysts’ expectations and raised its 2019 outlook, citing powerful demand for wearables, appliances, and games consoles. Finimize added that “the good news was a welcome relief for investors after Home Depot and Macy’s reported lackluster results – and retail bellwether Walmart neglected to raise its own 2019 outlook last week.”

With the curtain’s final close on the latest earnings season, many investors focusing on retail may receive further, firsthand insights into the direction of WW, Walmart and others.

Note: This material was originally published on IBKR Traders' Insight on March 8, 2019.

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Business relationship disclosure: I am receiving compensation from my employer to produce this material.