US dollar under pressure
The DXY index was pushed lower overnight following a speech from Bernanke. However he continued to steady the ship, (markets remained buoyed) despite not being overly impressed by the recent employment data there was no hint from the Fed chairman on QE3, although it has been suggested it could be a topic of discussion in the April FOMC meeting. However the pace of the US economic recovery appears to still remain a source of concern suggesting that the rates path set out into late 2014 is unlikely to be dramatically changed anytime soon. Later today Fed’s Dudley, Kamin, Fisher, Duke, Rosengren and Bernanke will all be speaking.
Closer to home, UK retailers have proved themselves overly pessimistic in recent months over the strength of sales volumes. We suspect that discounting by retailers has been used to shift stock. Back in January, retailers expected the index to improve to -10, but in the event they managed to eke out a -2 outturn. Some of this probably relates to the leap-year effect this year with the additional shopping day raising sales, but if retailers are discounting then it is equally possible that we see a stronger outturn in March then the market is looking for. Consensus is for the headline index to fall from -2 to -5, but back in February, retailers expected a +2 outturn. We put our faith with UK retailers but after a spate of disappointingly weak data we suspect that the market would ignore a fall less than -10. Any reaction would be limited to a stronger reading and would be sterling supportive.
Despite the strength of the NAHB survey, both pending and new home sales proved extremely disappointing in February. Although we may see some catch-up later on, in the short-term it looks as if hard economic data are lagging. This puts some downside risk on the S&P/ Case-Shiller home price index for January. The market is looking for a 0.3% fall to follow on from December’s 0.5% decline. But the softness of activity data would imply that there are some downside risks to that expectation.
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