This week hasn’t been a good week for the FTSE100, with 4 days of declines on top of a poor finish to the end of last week, with the index down 4% over the last 5 days, and down at 5-week lows.
The performance of the DAX has been slightly better, but it is still down by 2% over the same period as concerns about the health of the Chinese economy, along with a sell-off on global bonds causes investors to question how long rates are likely to stay at these sorts of levels.
For so long the debate has been about how high interest rates would be likely to go, and has been framed around the duration period before rates start to get cut again. In the last few days, the frames of reference have started to shift from how high rates are likely to go, towards how long they are likely to stay at current levels if inflation continues to be on the sticky side.
US markets continued to slip lower after Europe had closed, as the momentum from the recent technical breaks on the S&P500 and Nasdaq 100 gained momentum, both closing at 5-week lows, as US 10-year yields posted their highest daily close since 2008, with UK gilt yields already back at 2008 levels.
Yesterday’s weak US close looks set to translate into another weak open for markets here in Europe, putting the FTSE100 on course to post its worst run of daily losses since October last year.
While we’ve heard plenty of alarmist headlines over the effects of global warming in the past few months, at least the weather gave UK consumers a reason to go out and spend in June, beating expectations of a gain of 0.2% by some amount, with a rise of 0.7%.
Not only did sales in supermarkets and food outlets see a decent rebound, but we also saw a strong showing from department stores and furniture outlets.
Retail sales have proved to be remarkably resilient in the past few months with gains over the course of April, May, and June.
The resilience in wages growth over the past few months may also have played a part in this resilience, however heading into Q3 the big question is whether this can be sustained.
Recent spending data from Barclaycard showed entertainment spending rose 15.8% in July on the back of an uptick in spending for live events including Taylor Swift, as well as bookings for holidays after a warm June.
We also saw the release of 4 big movie releases during July, including Indiana Jones and the Dial of Destiny, Mission Impossible Dead Reckoning, Barbie, and Oppenheimer.
On the flip side, spending on clothing saw a decline due to the wet weather. If we see another positive month for July retail sales, could we call it a Barbie bounce?
For the most part expectations aren’t especially positive with an expectation that we could see a decline in July retail sales including fuel of -0.6%, which would be the first negative month since March when sales fell by -1.2%.
The final reading of EU CPI for July is expected to be confirmed at 5.3%, with core prices at 5.5%.
EUR/USD – currently languishing close to the bottom of its recent range but just above the main support area at the 1.0830 area. Still feels range bound with resistance at the 1.1030 area.
GBP/USD – continues to edge higher back towards the 1.2800 area. Remains well supported above the recent lows at the 1.2600 area. A break below 1.2600 targets 1.2400. A move above the 1.2800 area through 1.2830 could see a move to target 1.3000.
EUR/GBP – slipped back to the 0.8520/30 area, which is holding for now. A move below 0.8500 could see 0.8480. Above the 100-day SMA at 0.8580 targets the 0.8720 area.
USD/JPY – continues to edge higher, towards the 147.50 area. The previous peaks this year at 145.10 should act as support. A move below the 144.80 area, targets a move back to the 143.10 area.