The strong positive surprise that was the US Non-Farm Payrolls report last Friday (271k additional jobs created in the US as against 180k expected in October, and an actual 142k the previous month – the largest rise in NFPs this year) now sets up retailers for what they must hope will be a bumper selling season coming into the Thanksgiving and Christmas shopping seasons. More people at work means more disposable income, as does the increase, also reported on Friday, in Average Hourly Earnings (up 2.5%). Energy costs remain low and in fact are still falling. Lower prices for motor and heating fuel have often been likened to an unexpected tax rebate for individuals.
There is really only one cloud on the horizon, and it only exists for those of who take a contrarian view of things. Reuters are reporting that CALL options, purchased by those who expect the index to rise, outnumber PUT options (betting on a fall) in the consumer discretionary sector Exchange Traded Funds (ETFs), in the ratio of some 2.5 : 1. The relevance of contrarian signals lies in the fact that there is a considerable cohort of traders that believes that the market more often does exactly the opposite of what the majority expects it to do. And trading strategies based on contrarian position choices are more popular (and successful) than many might think.
The Retail Sales report moves the Forex market
US Retail Sales are out later this week, on Friday 13th. This particular report is always closely watched by Forex traders. If it provides the lift that is expected it will most likely prolong or even accelerate the US dollar rally that the Non-Farm Payrolls report contributed to on Friday. However, anything in the nature of a disappointment will almost certainly see dollar bulls severely punished. In the meantime those commodities that tend to weaken as the greenback rises, such as gold and oil, continue their journey south.