Gold Rises, Dollar Falls as Inflation Cools—Can Retail Sales Keep Markets Optimistic?

Will Today’s Retail Sales Report Bolster Optimism After Cooler Inflation?

Traders are closely watching the December retail sales report, due today, January 16, for signs of economic resilience. This data follows a cooler-than-expected CPI on Wednesday and a subdued PPI on Tuesday, which eased inflation worries and lifted equity markets. With Donald Trump set to take office on January 20, markets are bracing for increased volatility driven by potential policy shifts.

The core Consumer Price Index (CPI), which excludes volatile food and energy prices, rose just 0.2% in December, falling below expectations of 0.3%. The Producer Price Index (PPI) showed even softer wholesale inflation. Together, these reports reduced fears of additional rate hikes, leading traders to price in up to two Federal Reserve rate cuts by the end of the year. However, much hinges on today’s retail sales data, which will clarify the consumer spending outlook.

Will Retail Sales Confirm a Resilient Economy?

Economists expect December retail sales to rise 0.6% month-over-month, slightly below November’s robust 0.7% increase. Strong auto sales and solid consumer spending during the holiday season are likely to drive the numbers. However, any significant deviation could sway market sentiment, especially as traders assess whether inflation has truly peaked.

Morgan Stanley projects a 1.0% overall retail sales increase, with a 0.6% rise in control group sales, a critical GDP input. Goldman Sachs anticipates a 0.4% core retail sales gain, citing steady consumer momentum despite falling gasoline prices. A weaker report could reignite concerns about a slowing economy, particularly ahead of Trump’s inauguration.

How Will Trump’s Policies Shape Markets?

Trump’s inauguration on January 20 adds another layer of uncertainty. Market participants are wary of his tariff policies and their inflationary impact, which could pressure bond yields and equity valuations. However, deregulation plans have buoyed sectors like banks, cryptocurrencies, and private prisons since his election.

Investors will closely parse Trump’s inaugural address for clarity on trade and fiscal policies. Signals of immediate tariffs could sour market sentiment, while pro-growth measures like tax cuts may sustain the bullish momentum. With bond yields already climbing to multi-month highs, traders should remain cautious of further inflation-driven volatility.

Market Impacts for Today: Stocks, Forex, and Commodities

Stock markets are positioned for gains, driven by optimism over easing inflation and expectations of steady retail sales growth. Futures for the S&P 500 and Nasdaq point to a higher open, with tech and retail sectors likely to outperform if sales data surprises to the upside.

In Forex, the U.S. dollar remains under pressure following softer inflation data, which has reduced the likelihood of additional Fed rate hikes. A weak retail sales report could extend the dollar’s decline, boosting major currencies like the euro and yen. Conversely, stronger sales may provide temporary relief for the greenback.

Commodities are also reacting to inflation data and Fed rate expectations. Gold is gaining ground amid lower bond yields and a weaker dollar, while crude oil prices hover near multi-month highs due to tighter supply and optimism about global demand. A positive retail sales report could further lift oil prices, signaling robust economic activity.

Can Retail Sales Propel Markets Higher Despite Lingering Uncertainty?

If today’s retail sales meet or exceed expectations, equities may extend their gains, supported by easing inflation concerns. In Forex, the dollar’s movements will hinge on the report’s strength, with commodities like gold and crude likely to follow broader risk sentiment. Short-term, the outlook remains cautiously bullish, but traders should prepare for heightened volatility as Trump’s inauguration approaches.

More Information in our Economic Calendar.