Could we see a Platinum Jubilee boost for UK retail sales?
DDespite the moves over the past couple of days, European markets managed to hold onto most of the gains from earlier in the week, while the rally in Nord Stream 1 and yesterday’s ECB rate decision didn’t really change. the calculation.
The decision to raise interest rates by 50 basis points came as a surprise and appears to have been taken in an effort to convince the market that its new Transmission Protection Instrument, or TPI for short (oh good another acronym ), was a credible response to concerns about risk of fragmentation.
If that was the intention, markets didn’t see it that way, with the spread between German and Italian 10-year yields widening to 232 basis points, and levels seen just over one month.
The ECB insisted that the tool could be used ex ante to deal with “unwarranted and disorderly market dynamics”, and that the Governing Council would decide on each member country’s eligibility on an individual basis. the implementation of the TPI.
We succeeded in establishing that any country must comply with EU fiscal rules, fiscal and debt sustainability, sound and sustainable macroeconomic policies and the absence of serious macroeconomic imbalances. Whatever the measure, it is impossible for Italy to comply with all these measures, which is a problem, and if it did, there would be no reason to use the TPI, because the market would have confidence in the governance of the country. It is precisely because the market is going through a crisis of confidence in Italian governance that spreads are widening.
That leaves a lot of unknowns, including to what extent the ECB is legally limited under the capital key in terms of the number of bonds it can buy. Given the current political situation in Italy, the market could well test the mettle of the ECB regarding the TPI, which could in turn trigger a legal challenge in the same way that the German Constitutional Court had to rule. on the ECB’s previous bond buying programme.
The euro’s reaction to yesterday’s decision was quite telling, initially pushing higher on the 50 basis point move, then falling back as it became clear that the TPI raised more questions than answers.
While yesterday’s European session was mixed, US markets had another decent session, with the Nasdaq 100 leading the gains, despite very mixed earnings reports.
The outperformance of U.S. markets appears to be driven by the notion that deteriorating U.S. economic data could temper further U.S. rate hikes next year after weekly jobless claims topped 250,000 and the latest Fed index Philadelphia fell sharply to -12.3 in July.
Today’s focus returns to the UK economy and the latest June retail sales figures in a month that saw the CPI hit a new record high of 9.4%, with the idea sobering to even higher levels in the months to come.
It has been a painful year for consumers in the UK, with record consumer confidence and rising prices putting increasing pressure on disposable incomes since January.
The economic outlook has not been helped by an increase in tax rates, which took effect in April, at the same time energy bills rose by 54%.
In April, retail sales recorded a positive figure, but were revised down sharply from 1.4% to 0.4%, with most of the improvement coming from alcohol sales and of tobacco in supermarkets, while fuel sales also rebounded.
In the May figures which saw a decline of -0.5%, there was a notable drop in sales of food products.
As we look at today’s June numbers and the final month of the second quarter, the Platinum Jubilee celebrations likely saw a rebound in food sales due to the four-day holiday weekend, although ‘with grocery price inflation at 9.9%, according to Kantar, this could well trigger another negative month.
We expect a decline of -0.2%, but it could just as well swing the other way. As for Q2 GDP, it is still likely to be a weak quarter for the UK economy.
UK flash PMIs for July are expected to slow in both manufacturing and services from June levels.
EUR/USD – failed to break above the 1.0275 area yesterday, before falling back again. Main resistance still remains bullish at 1.0340/50 area. The bias persists for a move below 0.9950, towards 0.9660, all below 1.0350.
GBP/USD – continues to struggle above 1.2000 with major resistance at the 1.2040/50 area. We need to break through the 1.2040/50 area to stabilize and target the 50-day moving average. Support remains in the 1.1870 area with the bias remaining to the downside while below the 50-day SMA.
EUR/GBP – peaked above the 50-day SMA between 0.8540 and 0.8586, just below 0.8600. As such, the bias remains lower due to the inability to close above the 50-day SMA. Although below, the bias remains for a drift towards the recent lows.
USD/JPY – the bias persists for further gains on a break above 139.40. A breakout of 140.00 targets the 145.00 area. Support is coming in at the 135.80 level, along with stronger support in the 134.80 area.
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