GBP tanks on surprise drop in UK retail sales

The UK’s retail sales excluding auto fuel tanked by 2% month-on-month in December, heavily missing the analysts’ estimate of -0.4%. Apparently, Christmas hasn’t been prosperous for the UK retailers in 2016. The surprise drop in the UK’s year-end retail sales sent the GBPUSD below 1.2300 in London. Solid resistance is eyed pre-50/100-day moving averages, 1 2395/1.2428.

The FTSE 100 stocks opened slightly downbeat. Financials (+0.37%) traded higher on rising hawkish Fed expectations before Donald Trump’s inauguration due today.

Energy stocks (0.34%) were well bid, as OPEC meets in Vienna this weekend to agree on mechanisms to make sure that the output curbs are well respected. According to Oil Movements that tracks the current and near-term sea borne oil flows, the OPEC shipments could decline by 2.4% in early February. Solid compliance among the OPEC countries and the achievement of lower production could encourage a renewed inflow to the oil market next week.

Is the Trump optimism a ‘sugar high’ as Summers says?

It is inauguration day for Donald Trump.Trump’s aggressive fiscal stimulus plans have been priced in by the markets to an extent where investors could now sit back and watch how fast his promises will be concretised. In the immediate future, Trump promised to renounce the Trans-Pacific Partnership (TPP) and renegotiate the North American Trade Agreement (NAFTA). He has already taken steps to prevent jobs from leaving the US and announced to put in place 500 billion dollars worth of a government spending programme. As a result, the Federal Reserve (Fed) signaled to gradually tighten the monetary policy in order to stay ahead of the game, and to avoid falling behind the curve in moderating a potential rise in inflationary pressures. ‘We can’t afford to allow the economy to run too hot’, said the Fed Chair Janet Yellen at her speech in San Francisco earlier this week. The normalisation of the Fed’s balance sheet , that has reached historical high levels as a result of multi-year, ultra-expansionary monetary policy, should also pressure the US rates higher, along with the scheduled hikes in the Fed funds rate.

The S&P500 stocks plunged to $2258, while the Dow Jones retraced to the lowest levels since mid-December. US stocks are still significantly higher than their pre-Trump levels, hinting that there is room for further unwinding, if Trump’s inauguration doesn’t reveal the policy details that investors are craving for.

US stocks are expected to open rangebound today.

Gold set for fourth weekly gains yet watch out for the Trump effect  

As the US dollar softened across the board, gold found buyers as it slid below the $1200 level yesterday. Although the precious metal is set for a fourth straight week of gains, Donald Trump’s first speech as the 45th President of the United States could squeeze the price of a bullion in both direction. Trump’s promises are supportive of higher inflation, which could incite mid-term investors to buy gold for hedging purposes, yet in the very short-term, a too aggressive Donald Trump would keep the Fed hawks alert and underpin appetite in the US dollar. The mid-term resistance stands at $1219 (major 38.2% retracement on Jul- Dec decline), if surpassed, could encourage a further rise towards $1236 (100-day moving average).