The Retail Sales report is a close monitored report by investors, traders and economists. This indicator shows the value of goods sold in the retail industry. It takes a sample from businesses who are involved in the sale of consumer goods. The report includes data from fixed businesses, as well as from vending machines and mail catalogues. The size of the business is irrelevant to the report.
The report is released mid-month and covers sales data related to the previous month. Foreign exchange Sydney traders focus on this report as it is considered to be a pre-inflationary indicator that is vital to the forex trade. The report is comprised of two main components. It contains a total figure for sales, including a percentage change from the previous month’s figures, along with a figure that excludes automobiles as the high prices and seasonality of the sale of autos could skew the figure.
The Effect on the Foreign Exchange Sydney
The report has been known to cause high volatility in the stock market. It is an indicator of inflationary pressure which could cause investors and traders alike to rethink their positions. A rapid increase in retail sales mid-business cycle could cause the central bank to increase interest rates as a short-term measure of curbing possible inflation. This could have a detrimental effect on forex trading, depending on your type of trade.
If the growth of retail sales has slowed down or is stagnant, it could be an indication that consumers are curbing their spending. This could signal a period of recession as personal consumption plays a massive role in the health of any economy. In this case, forex traders may take advantage of the downslide in the country’s currency.
An important factor for traders to be aware of is the disparity between the reported figure and the consensus number. The financial markets dread surprises, so when a particular figure exceeds the expected figure, even if there is no clear indication of a problem, it could prompt investors to commence selling off their bonds, stocks and currencies. This is due to the fear of higher inflation.
Strengths and Weaknesses of the Retail Sales Report
- The data is released in a timely manner, only two weeks after the period it covers
- Adjustments are made to account for seasonal and holiday variances
- Traders are able to download historical data to allow an examination of trends
- There is a revised report that becomes available later
- The indicators are based on value and there is no accounting for inflation. This makes it difficult for traders to base their decisions on the raw data supplied
- The revisions made to the report are often quite substantial and the sampling that is used is quite small in relation to the number of retailers
- Does not take into account retail services. It is based purely on physical merchandise.
Retail sales is an important report as it sheds light on the state of the economy. The detailed information regarding industry can move the markets quite rapidly. Traders should wait for the economists to do their sorting whereby they remove particular figures and then draw conclusions from those reports. If you are able to draw personal conclusions from these reports, you will definitely be one up on other traders and can trade accordingly.
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