I’m not sure why we even had this week. There has been a real lack of impetus in financial markets in the past 4 sessions and today’s looks set to be no different. Looking at the opening prices here in London, I would bet that, barring some major data foul-up, we are in for a quiet day. Of course, now that I’ve said it the opposite will happen. I’m not even sure what I want. Volatility peaked up yesterday a tad but remains close to the lowest levels in 5 years; investors are either very brave or very naive. Nobody else knows what they want it seems.
Sterling bulls would be happy to continue seeing retail sales data like yesterday. Retail sales have been a volatile indicator over the past few months and yesterday’s number did nothing to reduce that. Food sales seem to be the main driver of the growth – up 2.1% on the month – and the poor weather helped sustain a strong pull higher in internet sales, up 7.9% on the month. While this is good news, we once again must query the sustainability of these moves.
The OBR has highlighted the potential slowing of spending later in the year given consumers dipping into their savings, and while wages settlements are starting to move higher, we doubt that the shortfall will be made up soon. Heavy discounting in February may have allowed some strength to this number but we will either see high street profitability take a hit from sales falling or from margins being squeezed further.
Sterling stuck on 0.3% against USD and 0.5% against EUR as a result and has managed to keep hold of these gains with little effort given the general level of malaise. UK GDP at 09.30 is unlikely to rock the boat too much either; this is the 2nd revision to Q4′s number and will in all likelihood remain at 0.7% – the highest growth in the G10 even with yesterday’s upward revision to the US’s number.
US GDP was revised slightly higher for Q4 from 2.4% to 2.6% with a very strong reading from the consumer with personal consumption growth accelerating to 3.3% annualised from 2.0%. The 2nd, and more important overall, piece of good news was the fall in initial jobless claims to the lowest level since the end of November with the 4 week average – useful in blending out extraneous kinks in the data – at its lowest level since September of last year. The correlation between these numbers and the payrolls release due next Friday is strong and we are looking for over 220,000 jobs to be added in the month of March – higher than the market’s view of 190,000.
Overnight eyes have been on Japan with retail sales rising at a slower rate in February than in the previous month. We had been looking for a very strong retail charge into April’s tax increase but sales rose 3.6 per cent on the year, down from January’s 4.4 per cent. Could it be that recent measures showing inflation in Japan are damaging people’s pockets? More damage will come from the sales tax increase we fear.
Euro is slipping a tad as we open up now following a poor Spanish CPI number showing deflation on a year on year basis. German inflation is due at 13.00 GMT
Have a great day.
