US Retail Sales to Drive Fed Policy: How Will Gold, Equities, and USD React?

US Retail Sales Report: Key Market Expectations

The upcoming US retail sales report is set to provide crucial insights into the state of consumer demand and economic momentum. As consumer spending represents a significant part of the US economy, the data will also be closely watched by market participants to gauge its potential impact on Federal Reserve policy, inflation risks, and various asset classes, including the US Dollar Index, gold, and equities.

Retail Sales Scenarios and Market Reactions

Here’s a breakdown of potential scenarios and their likely market reactions, based on data from IG:

1. Retail Sales Growth of 0.6% to 1.0%

   • US Dollar Index: Bullish
   • Gold: Bearish
   • US Equities: Mixed

   Strong retail sales growth in this range would signal continued economic resilience, which could reignite inflation fears. This would likely strengthen the US dollar as expectations for prolonged higher interest rates increase. Gold would likely weaken, as higher interest rates reduce its appeal. US equities could see mixed results, with sectors sensitive to higher rates potentially underperforming.

2. Retail Sales Growth of 0.3% to 0.5%

   • US Dollar Index: Bullish
   • Gold: Bearish
   • US Equities: Bullish

   Retail sales growth in this range would support the view of steady but moderating consumer demand. This outcome would likely align with market expectations for gradual Fed rate cuts, potentially starting with a 25 basis point reduction. The US dollar could still rise modestly, while gold may face pressure as inflation fears ease. US equities, especially consumer-driven sectors, could see gains due to reduced rate-hike fears.

3. Retail Sales Growth of 0% to 0.2%

   • US Dollar Index: Bearish
   • Gold: Bullish
   • US Equities: Mixed

   A weak retail sales result would point to slowing consumer activity, which could temper expectations for further rate hikes. The US dollar may lose some strength, while gold could rise as a safe-haven asset. US equities may react unevenly, with growth stocks benefiting from reduced rate-hike risks and cyclical stocks seeing some selling pressure.

4. Retail Sales Decline of -0.5% to -0.1%

   • US Dollar Index: Bearish
   • Gold: Bullish
   • US Equities: Bearish

   A decline in retail sales would heighten concerns about economic weakness, despite the recent strength in the labor market. The US dollar could weaken on expectations of a dovish Fed, while gold could rise as investors seek safer assets. US equities are likely to face pressure, particularly in consumer-driven sectors.

Market Outlook: Cautious Sentiment

The retail sales report is expected to shape market direction significantly. A strong report could boost the US dollar but hurt gold and equities, while weaker data would favor gold and increase risk-off sentiment. Traders are approaching the release with caution, awaiting clarity on consumer resilience and its impact on Fed policy.

Data source: IG