Market Drivers April 21, 2016

UK Retail Sales miss badly
All eyes on ECB
Nikkei 2.70% Dax -0.24%
Oil $44/bbl
Gold $1261/oz.

Europe and Asia:
GBP UK Retail Sales -1.3% vs. -0.1%
GBP UK PSNB 4.8B vs. 6.0B

North America:
EUR ECB Presser 8:30
USD Philly Fed 8:30
USD Weekly Jobless 8:30

UK Retail Sales missed the mark badly indicating that consumer spending in UK has slowed along with the rest of the economy, but cable remained bid as the bad news on the retail front was offset by better than expected Public Sector Net Borrowing data.

Uk Retail Sales printed at -1.3% versus -0.1% eyed with core component also coming in well below estimates at -1.6% versus -0.3%. The month’s prior data was revised downward as well to -0.3% from -0.2%. The news suggests that UK consumer is retrenching as UK economy slows. The turmoil over the Brexit debate may have played the part as well as the uncertainty surrounding the referendum could have dented consumer confidence.

Although the report was horrid on all fronts the market shrugged off the news assuming that this was a one off event rather than the start of a major decline in consumer demand. As we’ve noted previously the focus in GBP/USD trade remains on political rather than economic factors and the persistent lead of the Remain vote has given traders confidence to bid cable. After dipping to test support at the 1.4300 level cable popped back to trade at 1.4365 by midmorning London dealing as longs continue to buy every dip for the time being.

Still the negative overhang of the weak macro data should keep cable pinned in the 1.4300-1.4500 corridor for the time being as the political debate gets sorted out. The key question is whether the recent weakness in Q2 performance is simply the effect of political turmoil in the country or a more troubling trend of general slowdown in activity which could keep BOE on the sidelines for all of of 2016. If the later is the more likely scenario cable could resume its slide even if the Remain vote prevails as market attention turns back to economic matters.

Elsewhere today, all eyes will be on ECB with markets focused on the Mr. Draghi monthly press conference. Mr. Draghi is expected to stay the course and unless he announced new easing measures, the market is generally walking into the meeting bullish euros as the assumption is that the ECB will remain pat for now. The latest economic data from the Eurozone has not shown much improvement, but it hasn’t deteriorated either and the ECB is therefore likely to follows its already outlined course of action rather than embarking on any new initiatives. In short the market reaction this time is likely to much volatile than last month as traders will see no fresh news out of ECB.

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