Financial market research and analysis

Wall Street finished lower at the end of a volatile session on Wednesday, as investors digested the Fed minutes. Whilst the minutes were always expected to have a hawkish slant, the Fed leaning towards more rate hikes moving forwards, made an already jittery market more nervous. The US indices sunk following the release although they closed off their lows as the markets attempt to find a bottom. Finding a bottom to the recent sell-off could take some time, with investors potentially waiting to see how earning seasons plays out (or at least more of it) before making that call.

European bourses are heading towards a positive open, with the FTSE leading the way. Weakness in the pound overnight following Theresa May’s appearance at the EU Leaders Summit, combined with a tepid recovery in oil prices are underpinning the FTSE.

Pound Ticks Lower as May Considers Extending Transition Period

The pound flirted with $1.31 after Theresa May infuriated her Eurosceptic colleagues last night by saying that she is willing to consider extending the transition period. This means keeping the UK tied to the EU until beyond the originally planned 2020 deadline. Eurosceptics argue that this will keep the UK like a vassal state, observing EU laws without any vote or representation. On the other hand, it could give the EU and the UK time to find a solution to the Irish backstop issue.

This would be yet another fine example of kicking the can down the road. Something we have seen time and time again through the Brexit negotiations. Whilst extending the transition period for another year would mean the uncertainty for business would drag on, this is not what is weighing on the pound. It has been the lack of breathing space which has kept Theresa May in her position. There is a good chance that should the deadline be extended, we could see more jostling for power and an increased risk that a Eurosceptic colleague will attempt to oust the prime minister.

UK retail sales to hit the pound further?

Pound traders will look to focus on UK retail sales data as a break from the Brexit drama. This may not be a good thing.  Retail sales are expected to fall -0.4% month on month in September, down from a 0.3% increase in August. A decline in retail sales would hardly be surprising given the BRC report just 2 weeks earlier, which pointed to a 0.2% decrease in like for like sales. Once again groceries are expected to continue to do well, whilst non-essential items continue to disappoint. After a strong summer of spending from the UK consumer, and a surprise to the upside in August, there is a good chance the UK consumer is reining in their spending ahead of the Christmas period. According to the BRC, the usual back to school shop has not been as supportive as it has in previous years. A larger than forecast decline in retail sales could see the Brexit battered pound take another hit with a target of $1.30.

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