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. 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.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.