Research Team at TDS, suggests that weaker auto sales and falling gasoline prices should flatter US headline retail sales lower in February. Key Quotes “TD’s below-consensus expectation is for total consumer spending activity to post a 0.2% m/m drop. Much of the weakness in the headline performance should be owing to the sharp 12% m/m SA drop in gasoline prices, which should translate into gas sales at the pump falling a further 4.0% m/m on a seasonally adjusted basis, following the 3% m/m drop the month before. Spending on autos should also be weak. Sales excluding autos and gas, however, should boast a very respectable 0.2% m/m advance. Core retail sales activity should also rise nicely, gaining 0.2% m/m, reflecting continued upside momentum in underlying spending following the robust 0.6% m/m gain the month before. Outside of the disappointing headline performance, the overall tone of this report constructive, underscoring the relatively favorable backdrop for the domestic economic recovery. Risks to the forecast: The risks to the total retail sales forecast are tilted slightly to the downside, owing to the uncertainty surrounding the performance in auto sales. However, TD sees balanced risks to the on-consensus call for a respectable 0.2% m/m advance in core retail sales activity. Foreign Exchange: While FX and rates markets have diverged with the latter suggesting upside for the USD. We are reluctant to see much of an FX reaction to the retail sales data ahead of the Fed announcement the next day. Barring a major surprise, our inclination is that the dollar should be broadly contained. Even if the headline print is lower than forecast, the Fed’s upcoming SEP should present a downgrade to the growth outlook anyway so we do not think markets will be all too surprised should retail sales print to the downside. Moreover, this will likely be negated should the core retail sales measures print more constructively.” For more information, read our latest forex news.