Britain at the crossroads

The Day So Far

Cable remains on the back foot this morning with a combination of deteriorating UK consumer confidence, and the House of Lords hearing on the legislation on Britain’s withdrawal from the EU, weighing on investor sentiment. This of course comes in the new era of a hawkish Fed with March rate hike probabilities, as priced by FFR futures, now tracking at 96%. Technically, the move below 1.2200 in futures also looks interesting and marks the lowest price action for the pair since Theresa May’s infamous 12-points of Brexit speech delivered on the 17th January, a day that saw the biggest one-day rally in Cable for several years.

Data overnight revealed that the value of UK retail sales, ex food, fell on an annual basis for the first time since 2011 in the three months to the end of February, according to the FT. This also comes amid supermarkets reporting their fastest sales growth since 2014 amid inflation-driven price rises, promoting shoppers to turn to value providers such as Aldi and Lidl in large numbers. The overall assessment here seems to be one that consumers are already preparing for tough times ahead amid growing price pressures on household incomes so data measuring the consumer will be closely watched moving forwards. At the same time members of the House of Lords are due to commence their final debate on amending the government’s Brexit bill which comes just one week after the Lords voted in favour of amending the Article 50 bill over the issue of clarity on the rights for EU citizens. This last hurdle for the government should prove to be no more than a distraction rather than a game changing event, but the mechanics of the Brexit process in an environment of a weakening economy means that sentiment remains fragile for the moment.

The Day Ahead

When preparing for any session I always think about what is the major driver of direction in context of the week ahead. At this point in time, given the overt hawkishness of the Fed I believe NFP carries some importance as to not destabilising the Fed’s intent to hike in eight days time. Therefore despite noises over the Dutch and French elections the bigger underlying driver of financial markets remains to be the US. As such with ADP and NFP due later this week I am not looking to take a massive amount out of a day like today which may see the status quo remain. Although US stocks have recently gone into ‘snooze’ mode I think any talk of a pending correction is a tad premature and in reality we are only just 1.25% off the all-time highs. As such we maintain our long bias in the S&P while also looking to enter the market at $52.83 in WTI. Consequently we look to short T-notes from R1 (124.245) and given thoughts discussed above we look to short Cable from 1.2225 (yesterday’s low).