U.S. March Retail Sales Preview: How Consumption Data Will Affect U.S. Stocks, the Dollar and Gold

TradingKey - This Tuesday (April 21), the U.S. will release its retail sales data for March. This data is generally regarded as one of the core metrics for observing the consumption patterns of U.S. residents and serves as a vital reference for gauging U.S. economic growth. The data essentially provides a monthly observation of U.S. retail and food services consumption, covering various retail categories such as department stores, automobiles, and apparel.

Because retail sales are denominated in nominal terms, their fluctuations reflect not only underlying consumer demand but are also directly influenced by oil price volatility and inflation levels. Given that oil prices have recently remained at high levels, the significance of this data extends beyond assessing the strength of consumption; it will further influence market expectations regarding inflation trends and the trajectory of monetary policy.

Based on February data, U.S. retail sales recorded a month-over-month growth of 0.6%, the largest increase since last June, indicating that consumption remained resilient at the beginning of the year.

For March, the market needs to be particularly mindful of disruptions from oil prices. Since March, the situation in the Middle East has driven energy prices higher, and the U.S. CPI for March recorded its fastest monthly increase in nearly four years as gasoline and diesel prices continued to rise. Meanwhile, U.S. consumer confidence fell to a record low in early April, while consumer inflation expectations for the next 12 months also rose significantly. This means that the March retail sales data reflects more than just the strength of consumption, but rather a result compounded by oil prices, inflation, and shifts in sentiment.

March retail sales consensus estimates and previous values, Source: TradingKey

Market expectations suggest that U.S. retail sales for March may record a month-over-month growth of 1.4%, compared to the previous reading of 0.6%. If the actual headline data is stronger than expected, it would imply that American consumers are still supporting economic growth and that the economy is not cooling. For the Federal Reserve, however, this would reinforce the logic for maintaining higher interest rates for longer (3.5%-3.75%). Current market wagers on rate cuts within the year have cooled significantly, with some institutions even suggesting that the Fed may remain on hold this year.

How will the March retail sales data impact US stocks, the US dollar, and gold?

For US stocks, March retail sales data beating expectations is positive but not absolute. Strong consumption figures represent stable market demand and a solid revenue environment, signaling a positive for retail, consumer discretionary, and certain cyclical stocks; however, if they simultaneously drive up interest rate expectations, tech stocks and high-valuation growth stocks tend to come under initial pressure.

If the data falls short of expectations, the market logic will reverse. Weaker retail sales will first dampen corporate growth expectations, which is a short-term negative for the consumer and cyclical sectors, but it will also broaden the market's room to anticipate rate cuts, thereby benefiting rate-sensitive assets.

Meanwhile, the US Dollar and Gold ( XAUUSD) are classic rate-sensitive assets. The dollar has been repeatedly supported by 'inflation trades' amid war and oil price shocks, while gold tends to rebound significantly as the dollar weakens and rate-cut expectations rise.

Therefore, the key impact of this data on the US Dollar and gold is whether it alters the Federal Reserve's interest rate path. If the March retail sales data exceeds expectations, the dollar is generally more likely to strengthen, while gold may face initial pressure, as strong data drives up yields and sustains 'higher-for-longer' rate expectations; conversely, if the data underperforms or falls below previous levels, the dollar may pull back, and gold is more likely to find support, especially as oil price and inflation concerns have not fully dissipated.

Furthermore, the performance of core data excluding automobiles and gasoline is even more noteworthy in this release. If the headline figure is merely inflated by oil prices while core data shows a weakening trend, it would be a poor signal for future US economic growth and US stocks; conversely, if core data also shows strength, it suggests that US economic growth remains resilient, increasing the likelihood of a soft landing for the US economy.