TD Securities expects US retail sales to be flat in June at 0.0% month-on-month, below the 0.2% consensus. The bank forecasts the control group at 0.2% versus 0.5%, with gasoline sales weakening as prices fall and food services down 0.8%. Auto sales are projected to rise 3.0% m/m, providing an offset to broader softness in spending and pointing to cooler consumer momentum with potential implications for the US Dollar.
On inflation data, headline June PPI is cited at -0.3% against a 0.0% consensus, attributed to declines in food and energy. The firm has lifted its June core PCE estimate to 0.19% m/m from 0.14% following CPI, while still characterising the combined PPI and CPI read-through as subdued for the month. TD Securities expects the Fed to keep rates on hold in July.
US Dollar Outlook and Derivative Strategies
We expect the US Dollar to face steady downward pressure in the coming weeks as retail growth completely stalls. Derivative traders should consider buying EUR/USD call options or USD/JPY put options to profit from this weakening trend. Historically, when retail sales miss estimates by this margin, the US Dollar Index (DXY) has dropped by roughly 1% to 1.5% in the following weeks.
Interest Rate Policy and Portfolio Hedging Approaches
With headline consumer spending flat at 0.0% and producer prices dipping, the Federal Reserve is highly likely to keep interest rates steady before pivoting to cuts. We recommend buying fed funds futures or long-term Treasury futures to capture falling yields. Past data shows that similar economic cool-downs push the probability of an upcoming interest rate cut above 85%, which heavily boosts bond prices.
We also suggest utilizing options spreads on retail and consumer discretionary exchange-traded funds (ETFs) to hedge against a broader consumer slowdown. Buying put options on retail-heavy indices can protect portfolios from a drop in corporate earnings. Meanwhile, lower yields could provide a tactical entry point for call options on interest-rate-sensitive sectors like utilities and real estate.
