Markets Pare Gains Ahead of Bank Holiday Weekend

• Trump tax rally fizzles out after a week of daily record highs;

• Safe havens remained bid throughout the rally which may be a concern;

• Pound tumbles as retail sales suggest consumer is feeling Brexit pinch.

As we head into the bank holiday weekend, it would appear risk appetite is waning, most likely reflecting some profit taking following a great run over the last week or so. The Trump rally has been in full flow since last week when the President claimed that phenomenal tax reforms would be announced in the coming weeks, reigniting the rally that had fizzled out since the start of the year. With US equity markets up more than 2% since Trump made the announcement last week and today looking much quieter, it seems investors are happy to reduce their risk exposure, with the long bank holiday weekend also likely being a key factor.

Even throughout the rally over the last week, caution has remained very evident in the markets, possibly reflecting the increasingly risky political environment. Rarely do we see Gold so resilient at a time when equities and the US dollar are on the rise and yet here it is trading around its highest level in three months. The yen - another traditional safe haven - has also proved quite resilient throughout this and is on the rise again today to trade near to its own 11-week highs against the dollar and euro. Investors may be bullish on equities but they're hardly giving up on the safe havens which doesn't suggest there's much faith in the markets at the moment.

The pound has taken quite a hit this morning as the latest retail sales data indicated that the UK consumer is starting to feel the pinch of post-Brexit Britain. Retail sales fell 0.3.% in January which is well short of expectations and follows a very disappointing December, which turned out to be worse than we thought. While this decline was inevitable, it seems to have happened very suddenly and could be indicative of further pain to come for the consumer.

It is worth noting that higher prices have been compounded by higher fuel prices unrelated to the pound's post Brexit decline, but this is still quite clearly a major factor and if anything has increased prices at the pump even more. For the last six months there's been a lot of talk about how resilient the economy has been since the referendum but it would appear we're now going to see how true that is. Prices are rising and the early signs are that the consumer is not impressed. The economic fallout of this will show in the coming quarters at which point we'll find out just how resilient the economy truly is.