UK retail sales data lifts pound

OVERNIGHT

Asian equity markets were mixed amid speculation of further stimulus measures from China and as investors assessed the resilience of the US economy after yesterday’s fall in weekly initial unemployment claims. Major currencies remained tight ranges, while US Treasury yields were little changed overnight after rising on Thursday. There was limited initial reaction in Asia to the first fall in UK consumer confidence for six months. In politics, the Conservatives held on to former PM Johnson’s seat but lost the other two by-elections to Labour and the Liberal Democrats. 

THE DAY AHEAD

UK consumer confidence, released earlier, showed a decline in July for the first time since January. The headline index declined to -30 from -24, taking it back to the level in April. The outcome was weaker than both our and consensus forecasts for -26 and -25, respectively. Consumers were less positive about the economy and their personal finances. More positively, official retail sales figures for June were stronger than expected, rising by 0.7% on the month. The ONS said the sunny weather and summer sales supported the volume of sales. Finally, the ONS reported public sector borrowing (ex-banks) of £18.5bn in June, less than forecast. It follows higher than expected borrowing in the first two months of the financial year.

There are no further major economic data releases of note for today. Attention will turn to next week, particularly the monetary policy decisions from the US Fed, the ECB and the Bank of Japan. Both the Fed and the ECB are expected to increase interest rates by 25bp, while the BoJ will likely keep policy unchanged. Markets will be focusing on signals for future policy after the summer. Next week’s economic data include the first estimate of Q2 GDP in the US and July flash PMIs particularly for the UK and the Eurozone.

MARKETS

The pound reacted more to the retail sales data than consumer confidence, as GBP/USD moved back to 1.29 after falling to around 1.2850 yesterday. UK 10-year gilt yields closed higher for the first time this week, seemingly dragged up by US Treasury yields, although at 4.28% they remain below 4.44% at the end of last week. The Brent crude oil increased above $80 a barrel.