Market Drivers Feb. 19, 2016

UK Retail Sales better but cable falls
EU Summit focuses on UK but no agreement yet
Nikkei -1.42% Eurostoxx 0.01%
Oil $32/bbl
Gold $1221/oz

Europe and Asia:
GBP UK Retail Sales 2.3% vs. 0.8%

North America:
CAD Retail Sales 8:30

UK Retail Sales – the only major economic report of the night – came in much better than expected, but cable fell anyway as markets kept a wary on the EU summit where the negotiations with UK on its status in the European Union continued.

UK Retail Sales came in at 2.3% versus 0.8% eyed as January – which is a big sales month, proved to be a boon for retailers. Clothing and Textiles as well as non food items were the biggest gainers in a good sign that UK consumer remains healthy. There is little indication that today’s report would sway anyone’s opinion on the MPC, but it nevertheless suggests that UK GDP for Q1 should expand at a healthy pace.

In addition to Retail Sales UK Public Sector Net Borrowing figures also came in better than expected at -11B vs. -13B eyed in yet another sign that UK fiscal finances are improving as final demand picks up.

But attention of the market is on the EU Summit where negotiations with UK continue. So far nothing definitive has emerged but there is clear hope that parties will come to terms eventually. Cable recovered from its near term lows over the past few weeks precisely because risks of Brexit have receded, but the risks very much remain in place and if today’s meetings produce no progress, the pair could once again begin to drift towards recent lows near the 1.4000 level.

Meanwhile in North America the US calendar carries CPI. Given the upside surprise in PPI data CPI could turn positive this month which could provide a lift for USD/JPY which has been drifting lower on risk aversion flows all night, but inflation essentially non existent the impact of the data is likely to be minimal as currencies continue to trade in quiet ranges into the end of the week.

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