Risk off as US retail sales slam confidence

Trade talk progress has been thrown aside as the market brings slowing growth fears back into the spotlight.  Whilst mild optimism over US – Sino trade talks kept the FTSE in the green across the morning, weak US retail sales went down like a lead balloon, pulling the markets sharply lower.

US retail sales unexpectedly fell in December -1.2%, the largest decline in 9 years. Analysts had expected retail sales to have increased 0.1%. Retail sales are renowned for their volatility. Under normal circumstances one weak reading by no means constitutes a new trend. However, these dire figures feed directly into the market fear over slowing economic growth. This explains why we havre seem such a dramatic market reaction.

The figures showed a broad weakness across most sectors, fuelling concerns that the cooling of the US economy from prior quarters, could be greater than initially projected. Although interestingly this goes against the impressively strong labour market data which we saw in December and January. US futures quickly erased gains resulting in a weaker start for Wall Street. 

The dollar dropped sharply on the retail sales release, allowing the euro to push back above $1.13. Not bad for the euro given the dismal growth data from Germany and the eurozone earlier in the day. 

Pound dives on Brexit nerves
The pound has not been so fortunate and Brexit jitters are far outweighing any dollar weakness. The pound has dived through the $1.28 level as investors look ahead to a Brexit showdown in Parliament later today.

As the house of commons debates the direction of Brexit, the pound has been steadily losing ground. Eurosceptic conservatives are threatening to vote against Theresa May’s motion as it would remove no deal Brexit from the table. They insist no-deal must remain an option so as to not undermine Theresa May’s negotiating position with Brussels. With just a few hours to go until voting gets underway and just 45 days to go until Brexit, the pound is starting to crumble under the strain.

Brent falls from YTD highs
Oil was another victim of slowing growth concerns in the wake of the US retail sales data. The ripple effect from the ominous retail sales figures pulled Brent from its year to date high of $64.81. The overriding fear is that slowing global growth will hit demand for oil, regardless of whether OPEC is cutting production. WTI slipped over 1% to support at $53.50.