Financial market research and analysis

Stocks hold ground before inauguration

Stocks in Europe held their ground on Friday as investors waited for the inauguration of Donald Trump as President of the United States.

The FTSE 100 was little changed on Friday at just above 7,200 but will end the week well off its record high of 7,354. Pressure on the British pound has eased since Theresa May’s Brexit speech and that keeps a lid on foreign earnings growth potential at British companies.

Retail sales tell different story to retailers

Retailers including Sainsbury’s, Tesco and Marks & Spencer lost their status as stock market darlings. Data showing the biggest fall in UK retail sales since April 2012 in December took the edge off a cracking set of Christmas sales results from a large swathe of the high street.

The British pound slipped after UK retail sales slumped in December by -1.9% m/m, the 3rd biggest monthly fall in 20 years. It was an unexpected turnaround from the bumper +1.8% m/m gain in November and a rise in comparable Christmas sales reported by many retailers. Underlying the fall in sales was a rise in prices. The UK retail sales deflator reached a 3 year high of 0.9% y/y/ in December, up from 0.1% in November and a low-point of -2.8% in 2016. The number one concern is that higher prices accompanied by falling activity becomes a feature of UK economic data in 2017.

Supreme Court to test Sterling resolve

On Tuesday the Supreme Court will publicise its decision on the Government’s appeal of its previous ruling that parliamentary approval is needed to trigger Article 50. The court is expected to uphold its decision so the government is likely already preparing a bill for vote. Labour leader Jeremy Corbyn has said he will order Labour MPs to respect the referendum results and vote to trigger Article 50. Labour MPs don’t have a strong history of listening to their fearless leader, but will probably vote in line with their constituencies anyway, thus allowing the bill to pass.

The deterioration in economic data and the potential political upheaval next week will test the resolve of the recent recovery in Sterling. Nonetheless, we still view the move in the British pound following Prime Minister’s speech as a game-changer and expect GBP/USD to hold 1.20.

The Trump rocket will take off or explode

The market waiting for Trump’s inauguration has been like the countdown to the launch of a space shuttle; it should take-off but there’s a chance it could explode.

A degree of trepidation has crept into markets in the lead up to the first week of Donald Trump’s presidency. Markets have listened as Donald Trump talked the talk and they will be watching to see how he walks the walk. His aides have suggested Donald Trump is preparing to sign a number of ‘executive orders’ during his first week in the White House. It would make sense for Trump to want to score some early victories before going through the lengthier process of getting bills passed by Congress.

Some of the issues Trump could tackle via executive orders can have a direct impact on markets.

• He could withdraw from The Trans-Pacific Trade partnership deal (TPP) – This could be bad for Asian stock markets and Emerging Markets FX. If he talks about amending or even quitting the North American Free Trade Agreement (NAFTA) – this would directly affect Canada and Mexico, and thus their currencies and stock markets.
• Some specific plans for building a wall on the border with Mexico would be an additional source of pressure for the peso.
• He might cancel restrictions on the coal industry – the energy sector of the stock market may welcome this whilst green energy companies like solar could suffer.
• Some orders beginning the process of the repeal of Obamacare could trigger another leg lower in healthcare stocks following the drop during his latest press conference.

If you thought The Donald could disrupt things with his Twitter account, just wait until he has executive authority.

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