It’s been a rather mixed week for European stocks with decent gains and record highs for the DAX and CAC 40, while the FTSE 100 has had a week to forget, on course for its worst weekly performance in over two months.
US markets had a rather mixed session, the Dow finishing lower, with the S&P 500 and Nasdaq both posting record closes.
This has provided an uplift to today’s European open, along with further gains in Asia as investors look to the next Japanese stimulus plan, as we look ahead to more UK economic data.
This week we’ve seen unemployment in the UK fall to its lowest levels since before the pandemic, at the same time as there being record numbers of vacancies. This is especially good news at a time when there were concerns that the end of furlough might prompt a surge in unemployment.
Rather less welcome has been the fact that headline inflation has hit its highest levels in over a decade, while the latest retail price index has hit its highest levels since 1990. With wage growth also slowing, the risk of a consumer income squeeze is becoming a real concern, and probably also helps to partly explain why retail sales growth since April has been so lacklustre.
Looking at the headline numbers for retail sales over the last few months, it has shown only one month of gains since the 9.2% rise in April. Since then, we’ve seen declines of -1.3% in May, -2.8% in July, -0.6% in August, and -0.2% in September, with only a pitiful gain of 0.2% in June.
The lack of gain in September was even more surprising given that UK petrol station forecourts were sucked dry because of the fuel supply panic at the end of that month. This is despite evidence of strong credit card spending on items like cinema tickets, outdoor events, and restaurants, during the summer months as UK consumers stayed at home due to various overseas travel restrictions.
Anecdotally, domestic leisure businesses, particularly in seaside resort areas have had their best season in years. While the fuel crisis did provide an uplift to fuel sales in September, it also meant that discretionary spend fell elsewhere, with home goods seeing a sharp decline.
With everyone queuing up for petrol at service stations around the country the opportunities to buy a table or chairs tend to be more limited if you’re stuck in a queue, although there is always the option to shop online if the mood takes you.
As we look towards today's October retail sales numbers, you’d like to think that perhaps there might be some early signs of a pickup as we start Q4. Having come off 5 months of weak numbers there is the potential for a pickup in spending.
With reports of supply chain disruptions being reported globally for several weeks now, amongst warnings to shop early for Christmas we could start to see retail sales numbers in the lead-up to Black Friday and the Christmas period start to experience a pull forward effect. We’ve already seen that this week with US retail sales and there’s no reason to suppose it can’t happen here as well.
Expectations are for a rise of 0.5%, although it wouldn’t surprise to see a higher number given the warnings about ordering early to avoid disappointment.
The latest UK public sector borrowing numbers for October are also due to be released, and here we can expect to see a big drop with the end of furlough. Expectations are for government borrowing to drop sharply from £21bn in September to £12.4bn in October, giving an insight into how much the government's furlough scheme has cost on a month-to-month basis.
EUR/USD – appears to have found support just below 1.1265, rebounding back above the 1.1300 level. We need to push back above the 1.1400 area to retarget the 1.1530 area, to avoid further declines towards 1.1170.
GBP/USD – continues to edge away from the lows last week at 1.3350 but need to gain a foothold above the 1.3500 area and kick on through the 1.3520 area to open up the 1.3600 area. A break below 1.3350 targets a move towards 1.3160.
EUR/GBP – rebounded from the 0.8380 area, and could squeeze back to the 0.8470 area without undermining the prospect of further losses towards 0.8280. A move through the 0.8470 area opens a move back towards the 200-day MA and the 0.8580 area.
USD/JPY – the move to 115.00 could have been a false break, with the US dollar slipping back to the 113.80 area, and a key day reversal. A move below 113.80 could see a move back towards 113.20. We need to move through 115.00 to target 116.00.