Good morning,

No vote on Trumpcare yet

The Trump administration’s repeal and replace of Obamacare did not take place last night as the Vote was postponed with Congressional Republican leaders realising that the bill would go down in flames should members be allowed to vote on it.

The vote is now set for today with Trump himself demanding that the vote take place before the weekend. Republicans are scrambling to bolster support for the bill before the vote as, needless to say, a defeat on a bill this controversial within an Administration’s first 100 days would be a significant kidney punch. It is a binary decision at the end of the day.

Dollar has gained a tad overnight following reports that the Republicans have the votes courtesy of some last ditch negotiations. A speech by Federal Reserve Bank of Dallas President Robert Kaplan that told the markets that three interest hikes in 2017 was a “reasonable baseline” will have also kept some buying interest. For now, we are maintaining our belief that there will only be one more Rate rise from the Federal Reserve this year and that is likely to be in September.

Predictions markets and swaps are currently pricing in a 78% possibility of a hike in September with an 88% chance that rates will rise by December.

BOE members talk down rate hike prospects

The conversation around inflation and rate hikes in the UK continued yesterday with comments from two members of the Bank of England. Gertjan Vlieghe, one of the more dovish members of the BOE’s Monetary Policy Committee said he would need to see evidence of strong wage growth before he would consider voting for a rate rise according to an interview in The Times. Vlieghe went on to say that much of the inflationary pressure resulted from sterling’s devaluation and consequent price increases of products such as fuel and food.

Similarly Deputy Governor Ben Broadbent commented in a speech yesterday that the Bank of England was closely watching moves in wages and compensation but that everything was a “bit of a mixed bag” at the moment. He also weighed in on fears that investment in the UK may be “tricky” given future moves in the pound, changing trade ties and poorly forecastable returns.

Retail sales rebound in February

In data, UK retail sales bounced back well from their poor December/January although the three month trend and underlying factors remain weighted to the downside. A further drag on wages and higher costs will in turn limit discretionary spending through the summer months.

To us, this really limits the Bank of England’s need and desire to hike interest rates anytime soon. Our thoughts that the pound drive earlier in the week was misguided also seems to be bearing fruit but 5 days from a trigger of Article 50 anything could happen. Is this the beginning of another deep leg lower for the pound and how low could it possibly fall? What does this all mean for your business?

On March 29th, our latest webinar will try to answer these questions and take a deeper look at where the risks to your business lie in these markets. If you haven’t already, you can register here.

The Day Ahead

The data calendar is packed today with PMI sentiment measures on the performance of Eurozone member states’ manufacturing and services sectors as well as inflation in Canada and durable goods orders from the United States. Despite these announcements we still very much expect that the markets will trade on any political news forthcoming from France, the UK or Washington.

Have a great day and a better weekend

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To the comments, Author: Jeremy Cook e64c42cdda509545a9ee0aefaca45a8f (74.125.113.36) To the comments, Author: Jeremy Cook

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