Retail Sales Brighten the Gloom

U.K. suffers terrorist attack but remains stoic

Wednesday afternoons tragic events engulfed media attention and dismissed any complacency from the British people. Following such an event, there are any number of rallying calls. Then reality sets in and people go back to their routines. There are however, four families for whom this act will be burned forever in their minds.

The sense of gloom that descended over Parliament, which is now in full Brexit preparation, was lifted slightly by the news that the consumer continues to spend and support the British economy.

While last year’s fall in sterling, adds inflationary pressure to the economy, it has made the U.K. a far less expensive place to visit for the hordes of tourists who continue to come to this country.

Retail sales increased by 3.5% in February up from 2.6% in January. The data releases this week have been almost totally supportive for the pound but it has failed to break the 1.2520 resistance conclusively. Every rejection has, however, led to ever shallower corrections.

Next Wednesdays triggering of Article 50 will be an unprecedented event. This will be the first time, in a long time, that there is no point of reference for traders to call upon.

Market users will call the tune as traders become executioners of orders as their ability to set sentiment and direction falls.

There will be a lot of pressure on the U.K. Brexit Minister and the European Council President to set the tone that will continue throughout the “divorce proceedings”. Divorce is rarely pleasant, occasionally amicable but never straightforward and these issues will pervade the entire process.

It should be hoped that Brexit will cause the Europeans to reflect on what it is they are trying to create, who benefits and what can be done to make the whole bloc more inclusive and less open to criticism.

The dollar had a seesaw ride yesterday as President Trump came face to face with the difference between running a corporation and running a country. The checks and balances that he is subject to simply did not exist in his world. He said jump, his team asks “how high?”. Now he says jump and congress asks “what’s the benefit?”

Managing to remain below (dollar) support at 1.0800 and 1.2500 against the Euro and Pound has seen the dollar enter a shallow correction. It also gained some support from the postponement rather than the abandonment of the Bill to roll back Obamacare.

Congress is mostly concerned by what will follow. This fear sums up the President's first hundred days. He wants to cut corners to impose his will. Congress simply isn’t prepared to be railroaded.

It is possible that the President will choose bigger battles to fight and has already threatened to leave Obamacare in place should he continue to face resistance. This piece of legislation is hated by the Republican majority and Trump’s tactic may just sway them sufficiently.

Today sees the release of Purchasing Managers indexes (PMI) of economic activity in both the Eurozone and United States. These are important reports in that they give accurate estimates of future activity. Coupled with this, the United States also releases durable goods orders.

Durable goods are the “big ticket” items like planes and hips. While this is also a major indicator for the economy, the revisions receive greater attention than the headline since it is almost impossible to provide accurate data on a monthly basis.

PMI for the entire Eurozone has remained surprisingly high (conspiracy theory anybody?) The data is clearly dominated by, predominantly, Germany but there are other pockets of economic activity which add up to a probable 55.8 read. Slightly lower than January but still comfortably signalling expansion.

U.S. PMI provides an interesting contrast given the EU’s probable desire to become more “Federal” in the style of the U.S.

The U.S. data is far more accurate than that of the EU since all participants are “singing from the

same page”. Economic activity remains patchy but this is a fact readily acknowledged.

In the EU, the Council use “conglomerate” data to almost mask the problem countries to paint a more united picture. In the U.S., Federal help is readily at hand to assist those States facing difficulty, whatever the cause. That level of “economic sophistication” is not yet available in the Eurozone.

The PMI is likely to have risen slightly to 55.8 following last month’s 55.4 reading. It is an interesting fact that the developed economies produce remarkably similar data in this category despite the diversity of their economies and where they are in their economic cycles.