THE TAKEAWAY: USD Advance Retail Sales (OCT) > -0.3% versus -0.2% expected, prior +1.3% (m/m) > USD/JPY BULLISH
The effects of Hurricane Sandy, which wrecked much of the Atlantic coastline and disrupted the New York Metropolitan economy for at least a week, can now be quantified: the October Advance Retail Sales report showed its first decline in four months. After a +1.3% month-over-month expansion in September, October produced a contraction of -0.3% m/m, slightly worse than the -0.2% m/m forecasted by Bloomberg News.
Of note, the breakdown of the report shows an interesting shift: consumer staples spending (i.e., necessary items like food) outpaced discretionary spending (i.e., unnecessary items like televisions). In part, this might have been due to nearly a quarter of the country being directly affected by Hurricane Sandy over a week period, thus forcing them to stock up on supplies.
On the other hand, if this trend continues in November, then what could be happening is preparation by consumers ahead of the fiscal cliff. That is, consumers are spending less money on items they don’t necessary need, and only on items they do (hence, staples outpacing discretionary). Thus, continued gridlock over the fiscal cliff would be very negative for 4Q’12 GDP.
USD/JPY 1-minute Chart: November 13, 2012
Charts Created using Marketscope – Prepared by Christopher Vecchio
Following the release, the USD/JPY rallied from 80.15 to 80.30, before dropping back to 80.28, at the time this report was written. The USD/JPY has been gaining despite the miss on the data, suggesting that influences elsewhere are driving price action. Indeed, this may be true: the sitting government in Japan looks like its about to collapse; and President Barack Obama, a Democrat, is working closely with business leaders, labor leaders, and Republican Congressional leaders on a solution to the upcoming fiscal slope.
--- Written by Christopher Vecchio, Currency Analyst
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