The US retail sales report is due Tuesday at 8:30 am ET (1230 GMT)
The Fed will get two major pieces of the puzzle before Thursday's FOMC decision -- CPI on Wednesday and retail sales tomorrow.
We know that inflation will be low but the hawks at the Fed believe inflation is coming and what will drive it is consumers with more money in their pockets because of low unemployment.
Here are the five things to watch:
- Advance retail sales exp +0.3%
- Retail sales ex autos exp +0.2%
- Retail sales ex autos and gas exp +0.4%
- Retail sales control group exp +0.3%
- Revisions to July data
For the broader numbers, one sign of skew comes from August auto sales numbers which hit a 17.8 million pace in the month with the Big 3 all beating estimates.
The most important is the control group. It excludes the three key volatile groups, autos, gasoline and building materials. It's most likely to move the market and show the underlying trend in the economy.
Estimates range from 0.0% to +0.6%. Interestingly, Wrightson ICAP is ranked as the most accurate forecaster for this metric and they're the most optimistic.
What's the trade?
A few things:
- The market is jittery about a rate hike and obsessed with the Fed
- Fear of a Fed hike has sidelined funds and investors
- Fed funds are priced at just a 24% chance of a hike
What if the control group is strong?
There will be kneejerk US dollar strength but keep a close eye on stocks. If selling starts on rate hike fears it will pull USD/JPY back down but keep the US dollar bid more broadly. In that case, I think buying something like AUD/JPY or AUD/USD is the trade if you're willing to sweat out the Fed.
What if the control group is weak?
That will solidify the case against a hike. Risk trades will rise and dampen volatility. The trade there may be to sell the euro against the Australian dollar, emerging market currencies or even the pound. Be wary of selling the dollar.
