Well that was disappointing. I’m very unsure why we let the star-striker-who-scored-2-goals-and-had-a-wobbly-knee play. Kick him up in the air, take the yellow card; every man, woman and child in England will contribute to the £7 fine. Oh well.
Given that was all most people were looking forward to yesterday, trading was fairly quiet. Sterling pressed on to fresh highs versus the USD (GBP/USD) however, as it shrugged off a decline in retail sales. The first fall in retail sales for 4 months is not necessarily a bad thing of course. Food sales were impressive in April as Easter saw demand increase and a natural slump back from those levels was expected. A fall in sales in May probably reflects consumers desires to not overextend themselves before the summer months. June’s spending will almost certainly be higher as World Cup spending is taken into account, July’s will benefit from the beginning of the school holidays and August takes into account Bank Holiday Spending and back to school sales.
Consumers are very aware at the moment that real wages are still falling here in the UK and will remain cautious until this situation reverses. We anticipate that wages will once again start to turn higher in Q3 but will not reach consistent real-term gains until Q4.
GBP/USD has traded as high as 1.7063 overnight as the continual low volatility in FX markets has combined with the lack of inflation expectations from the Federal Reserve to lower USD across the board. In fact, volatility on GBP/USD in particular was crushed yesterday and at 4.45% on a 1 month time frame is the lowest level for 18 years. The 1996 low was 4.15% and there is very little to stop volatility slipping to those levels it seems. Lower yields on US debt are the driver of this in the short-term and a continuation of the recent spate of strong, but not extraordinary economic data from the US will only perpetuate this.
A case in point was yesterday’s initial jobless claims that continued to show decent strength in the jobs market. Claims fell to 312,000; bang on expectations and continuing claims slipped to the lowest level since October 2007. Good, but not exceptional.
NZD is slightly lower overnight following the first drop in job advertisements in New Zealand for 5 months. Advertisments fell by 5.2% on the month, the largest fall since 2010 and, although we don’t think there is any reason for it at the moment, this is more than likely as a result of firms just holding fire on additional hires following the recent interest rate hikes by the RBNZ.
For now, markets are likely to drift into the weekend with little on today’s data calendar. Have a good day and a great weekend.
