Is This the Beginning of Real Brexit?

Posted Thursday, October 20, 2016 by
Skerdian Meta • 2 min read

The UK retail sales data was published a couple of hours ago and it was disappointing. I´m not talking about market expectations, I´m talking about the trade plan we had. In our previous market update, I wrote that if the retail sales are positive and the GBP shoots higher, we would consider opening a long term GBP/USD sell forex signal around 1.26, or even 1.25 for that matter. 

I didn´t expect the retail sales data to take the price up there right away, but if the numbers were positive then this might have been the catalyst for a change in the short term market sentiment and a deeper retrace higher. But the numbers were what they were. Although they were not in negative territory, the sales for September remained flat and the yearly figures declined as well. 

This report has been quite strong in the last two readings post-Brexit, but now it is showing signs of weakness. This must be worrisome for the BOE (Bank of England) and the UK officials. It is understandable that the business side of the UK economy got cold feet after the Brexit vote and because are very sensitive to the uncertainties. But, the consumer side of the economy held up pretty well and that´s what really matters, because the business always follows the demand, if the consumer demands more, the business produces more. 

The problems start when the consumer side of the economy is unwilling to spend. This might come from lost jobs or lower wages, but the wages have been picking up and so has employment. So, leaving aside the fact that retail sales are usually volatile, the only remaining reason is that the consumers might be getting cold feet now. All the recent hard Brexit talk must have dented the market confidence. If that´s the case, then this might be the beginning of the Brexit effects in the real economy. 

I expect a lot of hardship for the UK in the coming years, it just hasn´t started yet. Or has it? We´ll have to wait for more economic data, but if the consumer starts showing signs of weakness then the investor sentiment can switch back to negative in an instant. 

So, this might as well be the beginning of hard times and the retail sales might be the first of the gang to fall, as Morrissey would sing. Anyway, the ECB (European Central Bank) is up next so get ready fellas. I don´t expect a change in the policy, but listen closely to the comments because the forex market is expecting hints for a change in the next two months.  

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