20 Nov 2017

Market Brief: UK retail sales fall for the first time since 2013

Shaun Garrett

Dealing team

Yesterday morning UK retail sales were released which showed that volumes as measured by the ONS grew by 0.3% in October following a downwardly revised 0.7% contraction in September.

Today's data releases
  Key levels
08:30 EU ECB's Draghi speaks in Frankfurt   Support Resistance
10:00 EU construction output
GBP/USD 1.3030 1.3340
13:00 US Bundesbank Weidmann speaks GBP/EUR 1.1070 1.1375
13:30 US housing starts
Market overview

Yesterday morning UK retail sales were released which showed that volumes as measured by the ONS grew by 0.3% in October following a downwardly revised 0.7% contraction in September. This corresponded to a year-on-year drop of 0.3% (the first in four-and-a-half-years). Higher inflation had dampened spending, the ONS said, but it also said October last year had seen very strong growth. Economists also pointed to unusually warm weather holding back sales of winter clothing. Although the figures were relatively uninspiring, sterling managed to perform well against its peers closing above 1.1200 and 1.3200 against the Euro and Dollar respectively.

The Bank of England will probably need to raise interest rates a couple more times over the next few years if Britain’s economy develops as expected, Governor Mark Carney was quoted as saying on Thursday, echoing guidance the Bank has given previously. “We’ll see how the economy evolves. If it evolves broadly in line with our projections, we would probably raise interest rates a couple of times over the next few years,” Carney told the Liverpool Echo newspaper. Carney also told the newspaper that Brexit could affect the path of Britain’s economy but the “fundamental economic impact of leaving the European Union will only be known over a very long period of time.”

Eurozone inflation slowed slightly as initially estimated in October, final data from Eurostat showed Thursday. Inflation eased to 1.4% in October from 1.5% in September. The rate came in line with the flash estimate released on October 31. On a monthly basis, the HICP gained 0.1% in October. Although inflation was softer than expected, the European Central Bank is more confident that inflation will gradually reach its target of "below, but close to 2 percent". ECB member Praet said ‘The recalibration of our asset purchases reflects growing confidence in the gradual convergence of inflation rates towards our inflation aim’. Praet also said that the strength and resilience of the euro area recovery boosts the ECB's confidence that reflationary forces will gradually support a return of headline inflation towards its target.

Across the pond the House Republicans passed their version of the US tax reform/tax cuts legislation, with 227 votes in favour and 205 against. Whilst this is an important hurdle, the proposals still have a way to go before they find themselves enshrined in law. Indeed, there are two separate versions of the tax legislation, one with the House and one with the Senate. The Senate bill was also discussed yesterday amongst key Senate Republicans but has not yet found its way onto the Senate floor, with Senate Majority Leader Mitch McConnell saying he will bring it for debate after Thanksgiving next week. Passage through the Senate is likely to be more challenging than last night’s House vote, with a couple of Republicans already voicing opposition to the proposals. Assuming the Senate vote does then pass, the legislation would then need to go to conference to try and reduce differences between the House and Senate versions, which could also be challenging.

The day ahead

As the week comes to a close it is a relatively quiet day on the data front. The Eurozone release current account data at 9am, followed by construction output figures an hour later. This afternoon the US release housing starts where they are expecting a positive figure for the month of October. 

Thought of the day

In a display of Christmas spirit John Lewis (the British department store) have thanked John Lewis (a Twitter user who fields customer enquiries sent to the wrong Twitter handle) by sending him some early Christmas presents. Mr Lewis made sure to warm up for the annual onslaught of messages on Twitter which happens when the store’s Christmas advert comes out and his polite and funny tweets have made him a favourite on the social network. The gifts included a cuddly version of the monster form the advert, a Google Home device and cake with his face on it! This ongoing social media relationship has helped John Lewis (the man) amass over 35,000 followers. Never mind a cake with a face on it, being organised for Christmas and ahead of the rush is definitely an early present. So if you would like to feel ahead of the curve and not rushing to put cover in place just before Christmas, speak to your Investec dealer today on 0800 055 6339 about how we can help.

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