Congress Vote on Healthcare and Yellen Speech Eyed

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

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

• Will Yellen continue with dovish post-hike message?

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.

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.

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.

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.

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.