UK Consumer in Focus After Fed Boosts Markets

European stock markets are set to take a lead from the U.S. and Asia overnight and open almost 1% higher on Thursday, boosted by the prospect of a first rate hike in December.

The minutes from the FOMC appeared to firmly back a rate hike in December although in typical Fed fashion, left plenty of room for manoeuvre should it change its mind for whatever reason. It seems the Fed is on a mission to inform and yet confuse, which probably says a lot about the lack of a strong consensus within the ranks.

At the end of the day, the statement following the meeting strongly hinted at a December hike, despite the clear opposition to such a move by some within the committee. While this may not be as straightforward a decision as it has been in the past, there is clearly a majority that are willing to proceed. The fact that we’ve had some good data since the report can only have strengthened their position. While markets may have feared rate hikes in the past, there is clearly now a view that we are now in a position to take them and prolonged uncertainty is far less desirable.

Attention will now shift to the U.K. and the release of the latest retail sales figures for October. A surprising surge in sales in September is expected to be followed by a small decline last month of 0.5%, which is neither unusual or anything to be concerned about. Consumer spending remains strong in the U.K. and is expected to be 4.2% higher than a year earlier with core sales up 3.9%. With that in mind, it would be pointless to become concerned with volatile fluctuations in the month on month data.

These spending figures are very encouraging and both appear to reflect the ongoing improvement in earnings while hopefully supporting job and wage growth going forward. The U.K. economy is consumer driven and figures like these suggest we have nothing to worry about with regards to the sustainability of this recovery.

Later on we’ll get some more data from the U.S., with weekly jobless claims and Philly Fed manufacturing data being released. The latter is expected to remain in negative territory, highlighting once again the difficulties being faced by the countries manufacturing sector, a victim of the stronger U.S. dollar. On the bright side, while conditions are seen deteriorating further, the pace of contraction is easing and appears to be nearing growth again, with today’s number seen only slightly falling short at -1.0.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.