3 Numbers: UK Retail Sales Set To Strengthen In February
James Picerno | Mar 23, 2017 02:18AM ET
- UK retail spending on track to accelerate as inflation picks up
- Eurozone consumer confidence expected to edge higher in March
- The Mexican peso has rallied sharply this year against the US dollar
The retail sales report for the UK will be a topical release in the wake of this week's news of stronger-than-expected inflation. We’ll also see a new profile of consumer confidence in the Eurozone. Meanwhile, the Mexican peso’s powerful rebound vs. the US dollar rolls on.
UK: Retail Sales (0930 GMT): Tuesday’s hotter-than-expected inflation report for February has raised new questions about the Bank of England's policy to delay raising interest rates.
Headline consumer inflation jumped sharply to a 2.3% annual pace last month from 1.8% in January. The increase pushed inflation over the BoE’s 2.0% target. The bank is willing to let inflation exceed its target for a period of time, but the tolerance may wear thin if incoming data continues to show that pricing pressure is accelerating.
Today’s retail sales update looks set to take another step towards the reflation narrative. Spending is expected to rise 0.4% in February vs. the previous month, based on Econoday.com’s consensus forecast. Meanwhile, the year-on-year trend is on track to pick-up for the first time since last October. Economists are looking for a 2.6% increase vs. the year-earlier level, sharply above January's 1.5% annual pace.
Analysts think that inflation’s pace will continue to quicken in the near term. The average independent forecast for annual CPI inflation for this year’s fourth quarter is 2.9%, according to this month’s HM Treasury survey of economists – 60 basis points above the inflation rate in February. Today’s retail sales data isn’t expected to offer a reason to trim the projection.
Eurozone: Consumer Confidence Indicator (1500 GMT): Inflation is also on the march in the Eurozone, rising at an annual 2.0% rate in February – exceeding the European Central Bank’s target for the first time in four years. Will the firmer pricing pressure take a toll on consumer confidence?
No, according to the consensus forecast via TradingEconomics.com. Analysts expect the Consumer Confidence Indicator (CCI) to tick higher in today’s flash estimate for March, holding near the upper range of readings over the past year.
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CCI is on track to rise to minus 5.7 this month, close to the recent peak of minus 4.8 posted in January. The relatively upbeat mood coincides with an improvement in the outlook for GDP growth. Now-casting.com is projecting that output will expand 0.6% in Q1 vs. the previous quarter – the fastest gain in a year.
Europe still faces a laundry list of challenges – on the political and economic fronts. The potent trouble spots include France’s presidential election that starts next month – an election that could threaten the euro if Marine Le Pen (the Eurosceptic candidate who’s been leading in the polls recently) wins.
For now, however, consumers remain upbeat, which implies that the Eurozone’s recovery will continue … unless the CCI offers a reason to think otherwise via a downside surprise in today’s monthly release.
USD/MXN: A lot can happen in three months in forex trading, as Mexico’s peso reminds us.
When the year began, the peso appeared to be in freefall as the weight of a potential trade war engineered by the Trump administration weighed on the currency. But just when you thought it couldn’t get any worse for the peso, the tide began to turn.
Since January 20, when the peso reached a record low against the greenback, USD/MXN has retreated more than 12% (a decline in USD/MXN equates with a stronger peso). Although the peso is now one of the year's strongest currencies, the trend looks set to continue.
USD/MXN has been trading well below its 200-day moving average for weeks and its 50-day average dipped below the 200-day this week for the first time in several years. Peso momentum, in short, appears strong.
What changed the sentiment on Mexico’s currency? Analysts point to the country’s resilient economy, including an improving trade balance fuelled by rising exports ex-oil. Higher interest rates don’t hurt either. The Bank of Mexico raised its benchmark rate 50 basis points to 6.25% last month, boosting the relative allure of the peso for yield-hungry speculators. That’s a tidy premium over the Fed funds target rate, which is currently at a 0.75%-to-1.0% target range.
The good times could come to an abrupt end if the Trump administration refocuses its attention on Mexico and starts talking tough on trade again. Meanwhile, the peso’s bullish trend rolls on.
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