Weather disruptions to shrink US retail sales; auto, gas plunging back

The 'retail control' aggregate for April strips out autos, gas station sales and building materials, but is expected to be up 0.6% MoM which is the strongest sequential monthly gain since November. A report in line with our forecast should bring forward market's expectations for the first rate hike. Retail Sales in the US was increased 0.9% in March of 2015 over the previous month.

Market participants will focus on retail sales. These data will be an important test of our thesis that the recent consumption weakness was weather-related.

Although the April headline gain will be suppressed by 0.4% MoM due to soft auto sales and lower gasoline prices, we look for solid increases in the remaining components of retail sales by an impressive 0.9% MoM.

We noticed only a single element that is "climate" while dealing with the dichotomy between income and expenditures over the past few months. We believe retrospectively that the weather also explains why we saw only a partial rebound in March retail data. The first week of March still saw extremely low temperatures in the Eastern and Central US and the heavy accumulation of snow probably did not melt until mid-month.

Currency Hedging Perspectives:

Because of mixed bag of data from both Japan and the US economy, we are projecting currency fluctuation for medium term perspective to test sideways. So, it is going to be the non directional sentiment on this pair in medium term provided the current trend in both the economies continues to persist.

Contemplating the non directional swings in USDJPY currency cross, we advocate the hedgers to buy straddles.

Option Strategy: Combinations (Buy a Straddle)

Overview: Neutral

With an increased anticipated volatility on series of announcements of significant economic data, the above strategy can help safeguarding the currency portfolios from any uncertain abrupt currency movements.

We are advising to buy both call and put options of same strike prices and same expiry in order to build this strategy. Best suitable on the verge of economic news or earning seasons etc.