Daily Brief

Safety first

Soggy sales everywhere

The mood on Friday was broadly one of risk-aversion. There was a clear win for the Japanese yen and an undisputed loss for Norway’s krone. Sterling and the Canadian dollar beat the krone easily enough but lost ground to the rest of the field.

Sterling’s obvious problem was the UK retail sales data for May, which came out prior to London’s opening. Instead of the forecast 1.6% monthly increase, sales fell 1.4%. Even the 24.6% year-on-year increase was a disappointment; a 29% rise had been expected. The biggest hit came from a 5.7% fall in food sales, supposedly because “people returned to eating and drinking at locations such as restaurants and bars”.

On its own, the slowdown in retail sales would have been a serious negative for sterling. However, it was just the latest in a series of similar slippages in consumer consumption. Data this month for US, Italian, German and Eurozone retail sales have all delivered unexpected declines. Investors’ concern is that the global economic recovery might be less explosive than they had thought, hence their increased appetite for the safe-haven yen and, to a lesser extent, the US dollar.


Fed hawk spotted

James Bullard, President of the St Louis Federal Reserve, “told CNBC he sees an initial interest rate increase happening in 2022 as inflation picks up”. His comment was positive for the US dollar and at the same time added to the risk-off argument.

Although there was no European Central Bank hawkishness to match Mr Bullard, the Governing Council was not idle at the weekend. Its members gathered in person, for the first time since March last year, at an off-site meeting to discuss “future monetary policy strategy”. The ECB “will make the outcome of the strategy review public after taking formal decisions”. Investors had nothing to say about the event, and the euro is on average unchanged.

Following the UK retail sales data, the only worthwhile ecostat on Friday was the Canadian new housing price index. Prices rose 1.4% in May and were up by 11.3% on the year.


ECB President up today

Another almost statistic-free day lies ahead. ECB President Christine Lagarde will make two virtual appearances, one of them at the European Parliament’s Committee on Economic and Monetary Affairs.

Overnight, Rightmove reported the “biggest seasonal rise since 2015” for UK house prices. Its measure of asking prices for residential property went up by 0.8% in June and was 7.5% higher on the year. Australian retail sales did not conform to the negative trend elsewhere but May’s 0.1% monthly increase was tiny, and much smaller than analysts had predicted.

There are no UK or European data on today’s list and the only US ecostat is the Chicago Fed’s national activity index, which appears at lunchtime. Tonight brings Westpac’s quarterly NZ consumer survey and NZ credit card spending for May. Ahead of London’s opening on Tuesday the ONS will reveal the scale of UK public sector borrowing in May.


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