After a more constructive few weeks for the Tory government, Monday’s attempt to shake off the legacy of the June election and the Conservative party conference speech in October fell short of what she would have hoped. Early on, the Conservatives mistakenly tweeted that Transport Secretary Chris Grayling had become Party Chairman, a post which went to Brandon Lewis. Later, Justine Greening resigned from the Cabinet rather than transfer from Education to Work and Pensions, while Jeremy Hunt refused to move from Health to Business. But the incumbents of the Foreign Office, Home Office and no. 11 Downing Street remain in place. Among the movers, David Lidington becomes Minister for the Cabinet Office, while Matt Hancock takes over at Media.

The British Retail Consortium released figures overnight for December retail sales. They showed that like-for-like sales were 0.6% higher in year-on-year terms; this was unchanged on November’s reading. On a total sales basis, values were 1.4% up y/y, effectively unchanged on November’s 1.5% y/y rate. The detail of the report once again highlights the divergence between the performance of the food and non-food sectors. Looking over the past three months (to December 2017), total non food sales fell by 1.4%, the lowest since March 2009. Total food sales however were seen increasing by 4.2% over the same period. The continuation of this trend, with food sales far outperforming non-food, provides another reminder of the impact of the household cash squeeze households are facing as they focus in on more essential spending. We expect that squeeze to ease off as 2018 progresses, but it will be a slow process rather than a quick-turn improvement.

We heard from two Federal Reserve members last night: Atlanta Federal Reserve Bank President Bostic Boston Fed President Rosengren; both spoke on inflation. Bostic urged policy makers to be patient with regards to raising interest rates saying that “I am comfortable continuing with a slow removal of policy accommodation…However, I would caution that that doesn’t necessarily mean as many as three or four moves per year”. Rosengren said that shifting away from an inflation target of 2 percent to a range could provide helpful flexibility, and aiming for a range between 1.5 percent to 3 percent would not be disruptive. 

The day ahead

The day ahead is a relatively quiet one data-wise. We see the Euro area unemployment rate for November out at 10am with the previous number of 8.8% forecast to change to 8.7% at this reading. This week sees a US Federal Reserve member speak every day and it is the turn of FOMC member Kashkari at 3pm this afternoon. Job openings and the NFIB’s small business optimism survey are also released today.

Thought of the day

Last month may well be home to the day when you’re most likely to be dumped - December 11. However it’s January that contains the most depressing day of the year and that day is January 15th: it is the third Monday in January and the formula to give us this states factors such as weather, debt, the amount of time elapsed since Christmas and also includes that we are likely to have failed at our New Year’s Resolutions by then! Here at Investec we feel there is a little bit more to be joyful about, so if you would like to discuss your plans for 2018 please call the Investec Dealing Desk on 0800 055 6339