Central banks hog the headlines

The FTSE opened lower taking the lead from a Fed inspired sell off in US and Asia overnight. The UK index then clawed back over 100 points across the session, after rebounding off a two-year low.

The FTSE opened lower taking the lead from a Fed inspired sell off in US and Asia overnight. The UK index then clawed back over 100 points across the session, after rebounding off a two-year low. However, investors aren’t willing to forgive Jeremy Powell yet, a soft open on Wall Street threatens to drag the FTSE lower into the close

Retail Sales Impress
Retail sales data put some cheer back in the air (and the pound) in early trade, jumping by 3.8% yoy in November, significantly higher than the 2.3% forecast. Black Friday and Cyber Monday had a lot to do with the sudden lift in retail sales which have been rather lacklustre over previous months. This will be a combination of consumers doing Christmas shopping early to grab the bargains and an improving financial climate. Wages are rising, inflation is falling. Generally speaking, the UK consumer should be feeling pressure easing slightly. Under “normal” conditions rising wages, inflation above 2% and strong retail sales would point towards an interest rate rise. However, the BoE made it clear that this wasn’t on the agenda right now.

BoE warn on Brexit uncertainties
The Bank of England are stuck in wait and see mode ahead of Brexit in March. The BoE voted unanimously to keep interest rates on hold, as expected. The stark warning from BoE governor Mark Carney over Brexit uncertainties sucked any good will from the pound, pulling it off session highs versus the dollar. Mark Carney warned that Brexit uncertainties had “intensified” over the past month. The BoE (or anybody else) has no idea whether the UK will leave the EU with a deal or in a disorderly fashion. Given the elevated levels of uncertainty, the central bank didn’t give indication as to how recent data was shaping monetary policy. This unnerved pound traders sending the pound lower.

No rebound for Wall Street
Wall Street was failing to rebound from yesterday’s sharp sell off. The Dow dropped 200 points in early trade extending Wednesday’s 370-point Fed inspired loss. Jeremy Powell’s lack of Christmas spirit, hiking rates just before Christmas, has not been the cause of the sell off. The hike was priced in. Investors are very concerned about the Fed’s plans to continue raising borrowing costs and unloading the Fed’s balance sheet in 2019 despite the economic outlook looking increasingly gloomy.
A clear winner from the less dovish than expected Fed and the wait and see BoE has been the euro. The euro bounded higher versus both the dollar and the pound. The question is whether the euro will be able to hold its ground ahead of GfK consumer confidence data tomorrow.

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