Good morning,
Shopped and now the drop
Over the course of the next 24hrs or so we will gain a more present insight into the pressures the average UK consumer is under. The UK consumer has been largely the most dependable and strong driver of the UK economy for a few years now and a weakening post-Brexit means real issues for overall UK GDP in the meantime.
The British Retail Consortium’s sales index overnight fell by its greatest amount for 6 years in Q1 as spending on the High St dipped markedly. Spending on food and restaurants increased although the evidence seems to suggest that the former is as a result of inflation and the latter due to increased tourism and credit card spending.
Above target inflation to continue
At 09.30 this morning the latest run of inflation numbers are also due and with food prices running higher and the pressure of the pound’s fall in the past nine months yet to be completely felt, expectations range from a dip to 2.0% on the year to a rise to 2.6%. We have long talked about consumers pulling in their horns in response to higher prices and the PMIs from the UK’s manufacturing, construction and services sectors last week suggested that trend was ongoing.
Later this morning we will see just how squeezed people are getting by prices before the latest round of wage numbers due at the same time tomorrow.
Fed remains decidedly neutral
The overnight Asian markets have been overly rather dull with most traders focusing on the words of Janet Yellen, Federal Reserve Chair, following a speech yesterday. The most powerful woman in central banking was entirely neutral in her stance telling those gathered that “Before, we had to press down on the gas pedal trying to give the economy all of the oomph that we possibly could,” and it is now trying to “give it some gas, but not so much that we’re pushing down hard on the accelerator.”
Such is the tightrope of a modern central banker; gas but not so much that inflation drives higher whilst mollifying critics and fearmongers that the bank is ‘behind the curve’. Needless to say there has been little change in market expectations of when rates will rise in the United States this year; another 25bps is largely priced in for June with another one half priced in for December.
French risk keeps euro on the back foot
Elsewhere, with only a few weeks to go until the French elections the euro remains on the back foot and has now lost ground for 11 consecutive days against the yen. We had hoped that sterling would benefit from this euro weakness but the post Article 50 invocation bump that we were looking for in the pound did not materialise, courtesy of the continued poor data and the lack of progress on the political front.
Have a great day