Theresa May

31 May 2020

Market Brief: US retail sales fizzle

Ian Wilson

Dealing team

The ‘big’ news yesterday was the worse than expected retail sales figure from the US. 

Today's data releases
  Key levels
08.30 Swiss National Bank interest rate decision   Support Resistance
12.30 US initial jobless claims GBP/USD 1.3657 1.4070
12.30 Philly Fed GBP/EUR 1.1186 1.1400

Market overview

US retail sales came in at -0.1% month-on-month for the headline figure versus expectations of 0.3% growth and 0.2% for the figure ex Autos versus expectations of 0.4% growth. This was the third consecutive month of shrinking figures, the first time that has happened in five-and-a-half years. This concern that consumer spending is cooling alongside Tuesday’s ‘muted’ inflation data helps to make the case for only three interest rate rises this year. The news put further pressure on the dollar.

 

In Europe Mario Draghi spoke yesterday and gave us a message we have come to expect – there should be a moderate series of rate rises after the bank ends its extraordinary stimulus measures. Data-wise European industrial production data came in worse than expected at -1.0% month-on month growth versus expectations of -0.4%.

 

Domestically Theresa May has expelled 23 Russian diplomats after Moscow refused to explain how a Russian-made nerve agent was used on a former spy in Salisbury. Russia is likely to, at the very least, expel a similar number of British diplomats in retaliation. The situation is ongoing and for now is something we’re keeping an eye on.

Join our dial-in with Chief Economist Phil Shaw

Tuesday 20 March 10:00 GMT
Prepare for an impending rate rise in the US and a two-day EU summit the next day by joining our UK chief economist for analysis of the economic outlook.

Lastly in the world of Brexit, discussions look to be moving in the right direction again in the run up to the 22/23 March EU Summit. Both sides in the talks are said to believe they are getting closer to a deal on a transition package, which bodes well for sign-off at the Summit next week. Reports indicate that the transition period is expected to last nearly two years until the beginning of 2021, with David Davis (Brexit secretary) saying he could ‘live with’ a period of less than two years; hence importantly this length of transition period does not seem to be a show stopper to a deal next week.


Progress also looks to have been made on the trade front, where the EU’s position has reportedly softened to say that the UK will now be able to both negotiate and sign trade deals during the transition period, in what looks to be a clear step forward in talks, from a UK perspective. Furthermore, the EU is also now said to have agreed that the UK will not have to defer to Brussels in WTO talks and will be able to participate ‘in its own right’, as long as it sticks to EU rules; this is seen as particularly important in allowing the UK to negotiate trade deals during the transitional period. Overall, ahead of next week’s Summit, there appears to be positive momentum, although British officials are still flagging that ambiguities needed to be ironed out. Brexit Secretary David Davis looks set to head out to Brussels on Sunday to meet with negotiators and his EU opposite number Michel Barnier, so we may well hear more on progress at that point.

 

The day ahead

It’s a day of a few notable bits and pieces but nothing of substance unless there are major surprises with the central banks or if political tensions heat up. FX-wise we have the Swiss National Bank Interest Rate Decision at 8.30am and a range of US data at 12.30pm, the highlights being initial jobless claims and the Philly Fed survey. At this stage it is also worthwhile starting to think about next week which features the Fed, Bank of England, and the EU Summit which focuses on Brexit. 

 

Thought of the day

St. Patrick’s Day is approaching and will be celebrated today at Cheltenham Festival and over the weekend across the world. Also known as the Feast of Saint Patrick, Paddy’s day is a cultural and religious celebration held on 17th March, the traditional death date of Saint Patrick, the foremost patron saint of Ireland. Paddy’s day traditions consist of sharing a meal of corned beef and cabbage, a staple of the Irish diet, as well as numerous pints of Guinness another staple of the Irish diet. This weekend the Irish may have even more to celebrate as Ireland take on England in the Six Nations, having already been crowned as champions, Ireland will be looking to complete only their third Gland Slam should they beat the English! The UK are making positive steps as Brexit discussions look to have made a move in the right direction. Talks have progressed on the transitional deal as both the UK and EU try to thrash out a deal ahead of the one year deadline before we officially leave EU. Investec are hosting a conference call with our Chief Economist Phil Shaw, Tuesday 20th March 10am, be sure to register to understand whether sterling will climb beyond the EU summit

Discover how our Treasury team can help your business

Live FX graph

Live FX graph

Live FX rates

Live FX rates

Join our dial-in with Chief Economist Phil Shaw

Tuesday 20 March 10:00 GMT
While corporates prepare for the end of the financial year, the major economic events loom large: a rate rise in the US, and a two-day EU summit the next day. Join our UK Chief Economist for his in-depth analysis of the economic outlook.
  • View important information

    This Market Commentary is provided for information purposes only and should not be construed as an offer, or a solicitation of an offer, to buy or sell any related financial instruments. This commentary has not been prepared in accordance with legal requirements designed to promote independent investment research. The information contained in this commentary has been compiled from sources believed to be reliable but no representation or warranty, implied or not, is provided in relation to its accuracy, suitability or completeness. Any opinions, forecasts or estimates constitute a judgement as at the date of this report and do not necessarily reflect the view of Investec Bank plc ("Investec"), its subsidiaries or affiliates. This commentary does not have regard to the specific investment objectives, financial circumstances or particular needs of any recipient and it should not be regarded as a substitute for the exercise of investors' own judgement. Investors should seek their own financial, tax, legal and regulatory advice regarding the appropriateness or otherwise of investing in any investment strategies and should understand that past performance is not a guide to future performance and the value of any investments may fall as well as rise.This commentary is confidential and may not be disclosed or distributed to any third party without the prior written consent of Investec. Investec Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and a member of the London Stock Exchange. Registered office 2 Gresham Street, London, EC2V 7QP. Investec Bank plc 2014.