Pound dips on UK retail data
UK retail sales fell well below expectations with 0.6% drop for December, and November’s figure was revised downward meaning the annual growth figure was cut to 0.9%. As the markets had been positioned for a strong release the impact was amplified. The Pound dipped sharply and sentiment collapsed on rising speculation of a January Bank of England interest rate cut with futures markets pricing a 60% chance. There was a limited recovery against the Euro but not enough to move back above the 1.1765 mark, and the Dollar moved close to 1.3000.
Futures market data recorded another increase bets on the Pound reaching a post April 2018 peak. If UK economic fundamentals fail to improve the positioning will amplify any Sterling sell off. The business confidence data this week will be key to Sterling sentiment. Chancellor Sajid Javid stated that “the UK would not be aligned with the EU after Brexit”, raising fears UK industry would be disadvantaged and the Pound opens just below 1.3000 this morning.
US housing starts increased sharply to an annual rate of 1.60mn for December from a revised 1.38mn the previous month, although the data may have been distorted by favourable weather conditions. Building permits slowed to an annual rate of 1.42mn from 1.47mn previously. Industrial production declined 0.3% for December, although manufacturing registered a small gain. According to JOLTS data, the number of job openings declined to 6.80mn for November from a revised 7.36mn. The University of Michigan consumer confidence index declined marginally to 99.1 from 99.3 as a slight increase in the current conditions component was offset by a small dip in expectations.
Dallas Federal Reserve (Fed) President Harker stated that he thought inflation was nearing the 2% target. The Euro was unable to make any headway and dipped below the 1.1100 level to test 2020 lows. There will be no further comments from Fed officious on monetary policy ahead of next week’s rate decision and there are very strong expectations of no change in interest rates.
The Euro is looking weak, having registered its biggest single day decline against the Dollar in over two weeks on Friday. The pair fell to the 1.1086 figure, its largest loss since January 2nd signaling an end of the minor bounce from January’s low and a resumption of the sell-off from December’s high.
Further declines however, may not happen if the German Producer Price Index beats estimates. The PPI has rarely moved markets in the past but with the US market closed on account of Martin Luther King’s birthday, trading volumes are likely to be quite weak. The pair could therefore witness some erratic moves on the figures released.