Congress Healthcare Vote and Yellen Speech Eyed

US equity markets are on course to open a little higher on Thursday, with traders paying close attention to Congress and the upcoming vote on Donald Trump’s healthcare bill, while in the UK the pound has been lifted by the latest retail sales data, perhaps wrongly.

GBP higher but is the retail sales data as good as the February number suggests?

The pound is trading slightly higher on the day after retail sales data for the UK rose more than expected in February, although it wasn’t all good news with the January data being revised lower. The ONS reported that the underlying pattern is less positive again with the three month on three month movement falling by 1.4% for the second month in a row, the largest drop in seven years.

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It would appear that while February was a good month for the consumer, the trend is both disappointing and concerning. The substantial depreciation of the pound since the June referendum combined with rising oil prices is eating away at people’s disposable income and the cracks are starting to appear. With the consumer being so important to the UK economy, the first quarter GDP figures could offer real insight into what kind of a year it’s going to be for the country, with the impact of the currency moves only just starting to be felt.

Key Points From UK February Retail Sales Report

  • Estimates of the quantity bought in retail sales increased by 3.7% compared with February 2016 and increased by 1.4% compared with January 2017; this monthly growth is seen across all store types.
  • The underlying pattern as suggested by the 3 month on 3 month movement decreased by 1.4% for the second month in a row; the largest decrease since March 2010 and only the second fall since December
    2013.
  • Average store prices (including fuel) increased by 2.8% on the year, the largest growth since March 2012; the largest contribution came from petrol stations, where year-on-year average prices rose by 18.7%.
  • Online sales (excluding automotive fuel) increased year-on-year by 20.7% and by 3.3% on the month, accounting for approximately 15.3% of all retail spending.

The full ONS UK retail sales report can be found here.

Preparing for the Trump Tantrum

Trump’s healthcare vote could be key to markets in coming days

Attention will now shift to the US as Trump works hard to push his healthcare plans through Congress with a vote expected in the next couple of days. Trump’s difficulty in getting people on board with his plans was largely blamed for the market selling off earlier in the week, with investors apparently seeing this as a sign that Trump may also struggle to get his spending plans and tax changes through. Should the healthcare plan be approved by Congress then we could see a resumption of the Trump rally while a failure could leave markets vulnerable to a larger correction.

Trump Trade needs Healthcare

Will Yellen continue with dovish post-hike message?

Traders will also be focused on what Federal Reserve policy makers have to say today, particularly Chair Janet Yellen, who is due to appear prior to the US open. Policy makers have erred on the dovish side since they raised interest rates last week which has weighed on the dollar and seen the odds of further rate hikes this year pared back. The market implied odds of a rate hike is June has now fallen below 50% while two rate hikes this year is a coin toss. We may have to get used to this kind of behaviour from the Fed this year with sudden coordinated hawkish turns ahead of rate hike meetings followed by more cautious dovish messages after in order to manage market expectations.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
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 Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. 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.