End of an Era [Video]

The Day So Far…

UK retail sales were the main economic event from the morning with the August number marking the biggest monthly increase since April. This in addition to the prior months data being revised upward saw Cable launch higher breaking yesterday’s range and the respective R1 & 2 levels in quick succession. Despite this the gains have been short-lived, and although the pair remains higher post release, almost half of the spike has been taken back. The reason behind this may well be the market fretting over what the future holds epitomised by the statistician’s comment from the Office of National Statistics;

“Within this month’s retail sales we are seeing strong price increases across all store types compared with a year ago, reflecting wider inflationary pressures” – ONS

This meaning that although the consumer is swallowing the price rises for now if these price pressures were to remain then most would foresee this as an unsustainable situation in the medium to long-term.

Sticking with the UK the latest Brexit news is that Theresa May may announce the first credible figure in order to progress talks with Europe. The EUR 20bln reported to be tabled is far short of what I feel will satisfy European politicians but it does show an olive branch to get things moving again and the timing of the leak would suggest we are likely to hear a conciliatory tone in May’s speech this Friday, a factor that I think will be a further positive force for GBP going into talks with EU’s Tusk next week. Elsewhere, the Dax has seen some volatility this morning with little fundamental reason. The tumble in prices earlier looked to be more technically driven with stops being tripped on the descent, exacerbating the move. This also comes as many participants will be sitting on their hands awaiting the main event later this evening.

The Day Ahead…

Focusing now on the Fed and today’s meeting holds more significance than normal given the Fed is expected to formally announce the process of unwinding its QE programme. Back in June the central bank revealed details on the format and size of what the process would look like so markets have had plenty of time to digest what is likely to occur in a few hours time.

The areas then that may have greater interest, and consequently equate to more market reaction, may be the latest Summary of Economic Projections (SEP) and what the ‘dot-plots’ tell us about the interest rate trajectory going beyond 2017. Secondly, Yellen’s press conference will be key and if her track record over the last 9-months is anything to go by then I would be expecting an appropriate nod to a December hike but for her to voice dovish concerns over the persistence of low inflation. In summary, although the Fed looks set to execute their plan of balance sheet tightening and a final rate hike before year-end, I believe the overall interpretation will be one of dovish tightening.