Fresh threats from weak retail sales and national emergency

Asian markets followed Wall Street lower as traders digested dire US retail sales figures and reports that President Trump will declare a national emergency to get his Wall with Mexico funded. This overshadowed any optimism over US - China trade talks, although that too was starting to wear a little thin.

Dismal US retail sales hit sentiment hard

US retail sales falling by the most in 9 years rattled investors across the globe on Thursday, with the effects continuing through to Friday. Whilst retail sales data is renowned for its volatility, the sharp decline feeds straight into market fears over slowing economic growth. The overriding concern here is that the coming slowdown in the US economy could be much worse than initially feared. As a result global stocks dropped, as did the dollar on Thursday.

The threat of a new US retail Armageddon has probably been overplayed. Let’s not forget the US labour market is still incredibly strong. Job creation in December and January smashed expectations. So whilst a slowdown is expected, one weak retail sales print is by no means the start of a new trend. There is a strong sensation that the US government shutdown and its affect on data collection is in some way linked to these horrible figures. Investors should wait for further confirmation of softening data. With that in mind today’s US consumer confidence will be closely watched. The University of Michigan confidence figures are expected to tick higher.

Investor wait for trade talk update

Whilst optimism has grown across the week that tensions are easing between the US and China, doubts were being cast on progress in talks as traders wait for an update . Reports that there is still a good distance between the two sides as high level talks begin in Beijing is not doing much to support an already downbeat sentiment.

Once again riskier assets are out of favour today. As to be expected in a reduced risk environment the safe haven Japanese yen was gaining ground versus the dollar. Meanwhile the dollar was strengthening versus the commodity currencies such as the Australian dollar.

Pound at $1.38 following PM May’s defeat

The pound was steady around the $1.28 handle after shedding 0.4% in the previous session. Theresa May suffered another humiliating defeat in Parliament on Thursday, losing the support of Parliament over her Plan B. Theresa May will tell the EU that she is no longer interested in reopening negotiations into the Irish backstop arrangement, in the latest twist. Given that her defeat on Thursday significantly raises the chances of a no deal Brexit, the pound is still looking relatively relaxed at these levels. As the clock continues to tick we can expect pound traders to start loosing their nerve unless there are tangible signs of an extension to Article 50. Although we wouldn’t expect that until March.