Market Drivers for November 15, 2018
Europe and Asia:
GBP UK Retail Sales 2.7% vs. 3.3%
North America:
USD Retail Sales 8:30
The resignation of Brexit Secretary Dominic Raab sparked a furious selloff in the pound in early European trade today with the pair dropping more than 250 pips before finding some support at the 1.2750.
With PM May facing a rebellion in the ranks and even a possible prospect of a no-confidence vote the markets are starting to worry that UK is headed for the worst of all possible scenarios – a hard Brexit.
Ms. May’s primary argument at this point is that her current deal is the best that can be achieved right now and that a failure to ratify it, will lead to an unruly and possibly very dangerous exit from European Union as everything from air transport to pharmaceuticals could be in a state of flux. Yet that is exactly what many UK politicians seem to want. At this point, May’s razor-thin majority is unlikely to support her deal and with Labor unwilling to cross the aisles it’s difficult to imagine how UK Parliament will approve some workable compromise before the deadline of March 2019.
The political turmoil is clearly taking its toll on UK economy as today’s Retail Sales came in woefully weak at 2.7% vs. 3.3% expected. The specter of hard Brexit could freeze all economic activity until the deadline and UK economy could decelerate further putting fresh pressure on the pound. The upside case for the pair now rests solely on the ability for cooler heads to prevail, but if politics drive UK towards a hard Brexit 1.2500 GBPUSD will soon be in view.
In the meantime, in North American session the markets will be looking US Retail Sales with consensus calling for a 0.5% print versus -0.1% the month prior. If the data once again comes up short it would confirm the bears “peak growth” thesis and could send USDJPY towards 113.00 as the rosy projections of steady 3% GDP growth would need to be adjusted downward.