cross markets data reaction

British Pound, Stocks Look For Repeat Volatility Surge From Retail Sales

Wednesday, 21 March 2007 23:14:37 GMT  |  John Kicklighter and Terri Belkas, Currency Analysts

Retail Sales (MoM) (FEB) (09:30GMT; 05:30EST)	Retail Sales (YoY) (FEB) (09:30GMT; 05:30EST)
Expected:                0.6%	Expected:              3.7%
Previous:               -1.8%	Previous:               3.3%

How Will The Markets React?

In the past few days, a sparsely populated economic calendar has driven volatility and price action throughout the British financial markets. Now, traders across the currency, debt and equities markets are facing their final scheduled release for the week – a last chance to break major levels that have formed in all the major asset classes. Consequently, the consensus for February retail sales is already in pointing the right direction for breakouts. Following the biggest drop in monthly sales in four years, last month’s report is expected to offer up a healthy 0.6 percent rebound. Taking into account the few related indicators from the consumer sector over the same period, a moderate boost in retail activity seems well founded. British shoppers were well armed for a return to the shops. Last week, governmental data reported a drop in the claimant count and a pick up in wage growth. Jobless claims dropped by 3,800 filings in February, the fifth consecutive monthly contraction, while average earnings for January accelerated to 4.2 percent. Quelling any doubt that these improvements didn’t directly affect consumer sentiment, the Nationwide consumer confidence survey reported the second consecutive rise in optimism. Though, for full disclosure’s sake, the gauge is only two month and as many points away from a two-year low. Therefore, the closing argument for a strong turn in the sales numbers should be a trusted proprietary report. The British Retail Consortium reported acceleration in its year-over-year sales data from 5.2 percent to 5.6 percent in February. Regardless, of the absolute direction of the retail report, the markets may be relying more on the extent of the change. With gilts facing major support and GBPUSD and the FTSE 100 Index staring down heady resistance, a surge in momentum may hinge on a strong surprise to the upside. 

Bonds –10-Year Gilts Futures

The benchmark gilt marked its first advance in five sessions Wednesday – oddly enough, on a day when traders had no hard data to trade on. This swing lower began back on the 14th when fundamentalists entered the market following strong employment and wage growth numbers. Since then, yields were pushed along with only the help of the Rightmove House Prices indicator for March. Now, with support read slightly below the session low around 108.75, volatility gilt traders will pull the February retail sales report in focus to judge determine whether there will be enough momentum to take prices through the temporary floor and on to 107.50. Should the indicator fail in this task, bears may not have another chance to overtake this level until the same time next week.





FX – GBP/USD

The British pound continued its ascent higher today, despite the fact the minutes of the Bank of England’s March monetary policy meeting showed that member David Blanchflower surprisingly dissented in favor of a rate cut. Prior to the release of the minutes, the bias of the central bank was widely perceived to be one in favor of tightening. By the end of the US session, however, Cable stalled out as price neared resistance from the February highs at 1.9680. Will the pair back down from the challenge? Not if retail sales rebounds and hits the tape at or above expectations of 0.6 percent for the month of February, especially after the figure plunged a dismal 1.8 percent. Indeed, BRC retail sales for the same month hit an annual rate of 5.6 percent – the best reading since July 2006 – boding particularly well for the headline release. However, should consumption prove to falter for the month, Cable could quickly turn lower as growth prospects would be damaged by lagging domestic demand.





Equities – FTSE 100 Index

UK shares furthered their rally from last Wednesday’s lows as the minutes of the Bank of England’s March monetary policy meeting showed that eight members voted to leave rates steady while one member, David Blanchflower, unexpectedly dissented in favor of a rate cut. The FTSE 100 Index ended the day 0.6 percent higher at 6256.80 as property company Hammerson led the blue-chip leaderboard. Shares of the firm rose 4.8 percent to a record high of 17.34 pounds amidst rumors of private equity bidding. The gains also led other property stocks higher, with Land Securities up 2.7 percent to 21.81 pounds and British Land up 1.4 percent to 15.58 pounds.

Similar to GBPUSD, the FTSE 100 Index has stopped short of critical resistance at the confluence of the 61.8% fib of 6256.80 – 6000.70 and the 50 day SMA near 6270.00. However, the release of UK retail sales could ignite major price action and send the FTSE barreling higher if consumption proves to have rebounded in February following January’s disappointing contraction. On the flip side, a decline in spending would bring about significant repercussions for the retail sector, sending broader share prices down as well.

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