The UK markets were focused on key CBI realised sales figures yesterday in light of tomorrow’s interest rate decision, with the headline number coming in flat for January, unchanged from December and painting a fairly lacklustre picture of the retail sector. As you’d expect, Sterling fell marginally on the release with traders continuing to digest all data releases in order to predict tomorrow’s decision ahead of time. Despite the negative data reading, the probability of a cut tomorrow has dropped a few percentile points in recent days to 50% from 72% a few weeks back. In the political sphere, Sterling was also wobbled by trade doubts with the US as President Trump expressed his displeasure with the decision to grant Huawei limited access to the UK 5G.
Despite the 50/50 probability for a rate cut tomorrow, the Shadow MPC (a group of nine economists and former policymakers), voted 8-1 to hold interest rates citing that economic confidence will return with the planned budget stimulus. The market waits with bated breath for tomorrow’s interest rate decision.
From a Brexit perspective the European Parliament is expected to approve the Withdrawal Agreement, which was passed by the UK Parliament last week. This will mean that the UK will formally leave the EU this Friday and enter a transition period.
US Federal Reserve Interest Rate Decision Later Today
In the meantime, US data continues to perform well. Headline US durable goods orders increased 2.4% for December following a revised 3.1% decline the previous month. In addition, consumer confidence and the Richmond Fed manufacturing index strengthened.
Looking to the day ahead the market is likely to focus on the US Federal Reserve policy announcement. Whilst not having the interest levels of tomorrow’s meeting and a hold in rates priced in, the market will be keen to decipher the rhetoric from the FOMC for clues on future policy action especially as trade tension have eased and data has been to the upside. Before the FOMC we have the US pending home sales set for release.