Sterling Hurt by Retail Sales Fall

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A surprise fall in a measure of High St activity in the UK saw GBP/EUR fall to a 1 week low while sterling also lost ground against the dollar and its other crosses. UK retail sales declined by 0.6% against a consensus view of -0.3% stymying belief that the UK economy is in for a swift recovery. The PSBR, the amount of money borrowed by the government in a certain month, rose to £19.9bn in May and this also added pressure onto the pound and the prospects of rehabilitation in the short term. This is not a good sign given the amount of government debt that will placed into the market for purchase over the coming years.

This heightened risk aversion was alleviated somewhat by good data out of the US however as Initial Jobless Claims fell for the first time in 5 months while Philadelphia manufacturing fell less severely than expected. These both bolstered risky assets and stock markets took a large leap higher; the FTSE was able to finish in positive territory by a couple of points in a show of hardiness. The past 2 days does show the fragility of the recent sterling rise however as data is no longer the vanguard that the pound used to rely on.

The move into risky assets had a huge effect on US Treasury debt that saw prices fall like a stone. This was combined with the news that the Federal Reserve is set to auction a whopping $104bn of debt over the next week. To put that into perspective that is nearly the same amount of money as the entire GDP of Peru, would buy 136  Wembley stadiums or 30,657,627,118 Big Macs. It’s a huge amount of cash and shows how indebted the economic superpower is and will continue to be for a long, long time.

Data today is largely 2nd tier with only Canadian Retail sales left for this week’s releases. We do however expect a volatile day as market participants trade out of profitable positions and bank profit before the weekend. Next week promises to be more of the same with Tier 1 data such as German Ifo (Monday), US Fed Decision (Wednesday) and Nationwide House Prices (Monday) to be aware of.

Have a great weekend; C’mon you Lions!

 
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