“TD looks for retail sales to fall by 0.5% in June on a pullback in motor vehicles while core measures should see a more modest decline,” TD Securities analysts note.
Key quotes
“Preliminary data indicates a slowdown in auto sales but we do not expect a full unwind of May, which was largely a rebound from cold weather. Outside of autos, gasoline stations will also act as a modest headwind on lower prices at the pump, leaving ex-auto sales down 0.2%. In real terms, retail sales should decline by roughly 0.7% but rise by 2.9% (saar) for Q2 as a whole, consistent with a rebound in household consumption from the 1.1% pace in Q1.”
“This report will give us the last activity data ahead of next week’s Q2 GDP and will be closely monitored after the upside surprise on CPI. While we see plenty of reasons for markets to fade that print, it will become admittedly harder if followed by significant upside in retail sales. That said, with two months of retail data already in the books, we want to emphasize that it will take a significant upside surprise to push our Q2 GDP tracking high enough to raise the prospect of a September BoC hike. A modest positive print is not going to move the needle.”
“The loonie comes rolling into the June retail sales following the peak in USDCAD in late June. Given the lift in data surprises, the market has firmed a bit on an October rate hike and is mulling the idea of a September hike, which is priced around 20%. We note, however, that the rise in data surprises reflects mostly subdued expectations rather than a burst of economic activity. Still, with the USD starting to correct from the recent highs the loonie could naturally get a lift. We would look to buy into USDCAD dips ahead of the data and like short exposure to oversold European currencies like EUR and NOK. We are positioned for EURCAD upside in risk reversals and like selling CADNOK in cash off the highs.”
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