Ian Gilmartin, head of Retail & Wholesale at Barclays Corporate Banking, is encouraged by the jump in retail sales:
“Record breaking temperatures in May had shoppers running to the tills to stock up on food and drink, with DIY and garden stores also receiving a boost from the warm weather. The really encouraging aspect to today’s figures is the breadth of positive data, with growth posted across the different parts of the retail sector. We shouldn’t get carried away as it’s still very tough out there, but the truth is that despite continued rumours of the demise of our retail industry, many retailers are simply getting on with the job and continuing to attract customers through their doors.
Football fever could give retailers another lift, he adds:
Of course, we’re not going to have a heatwave and a Royal Wedding to help drive sales every month, but the World Cup kick off should help supermarkets in particular maintain this momentum over the next month or so.”
The recent pick-up in UK wages may also be driving retail sales higher, suggests Chris Williamson of Markit.
The unexpectedly strong UK retail sales figures have sent the pound sharply higher.
Sterling is up 0.5% at $1.344, as traders predict that an August interest rate hike is more likely.
More on the Meghan and Harry effect from the ONS:
Food stores provided a positive contribution to growth with supermarkets commenting on good sales in celebration of the Royal Wedding during good weather.
UK retail sales smash forecasts
Newsflash: UK retail sales were stronger than expected in May, new figures from the Office for National Statistics show.
Sales volumes jumped by 1.3% compared to April, smashing forecasts of a 0.3% rise.
On an annual basis, the amount sold by retailers jumped by 3.9%, with growth across the board:
The ONS says there are two factors – good weather in May, and the Royal Wedding of Prince Harry and Meghan Markle (now the Duchess of Sussex).
This encouraged spending on food (all those Royal Wedding BBQs?) and on household goods.
Retail sales had been suppressed by the bad weather earlier in the year, when ice and snow kept shoppers off the streets. Things seem to be improving now, though, with sales rising in line with temperatures:
Today’s ECB meeting is the first since Italy’s new coalition government was sworn in, and began announcing policies that could breach Europe’s budget rules.
A clash is brewing between Brussels and Rome, even though Italy’s new finance minister has insisted the country is committed to the euro.
The ECB is often accused of being too political — Mario Draghi regularly chides elected politicians to implement structural reforms.
But on this occasion, the governing council may be keen to take its big decisions on QE before a crisis blows up.
Bank of America Merrill Lynch say:
“We believe the ECB may be in a hurry to close the QE chapter,”
“We think this is essentially political, as the ECB would not want its monetary policy to be affected by claims of supporting or conversely impairing the new policy course in Italy.”
ECB meeting: What the experts say
Economists and investors are split over whether the European Central Bank will make a decision about its stimulus programme today, or kick the can down the road to July’s mereting.
Elsa Lignos of Royal Bank of Canada predicts the ECB will have an “active debate” about whether to let its QE programme expire in September.
However, she doesn’t expect the final decision until July’s meeting, adding:
The other point of focus should be the updated staff forecasts, and in particular the 2020 inflation forecast (currently at 1.7%). We look for an upward revision, which would be positive for the euro – though unclear whether that will be enough given yesterday’s rally.
The first hike is currently priced for June 2019 but with the deposit rate [on bank deposits at the ECB] at -0.4%, there is a long way to go to get to neutral.
Draghi will almost certainly be grilled on the Italian situation in the Q&A but we doubt that he will let himself be drawn in.
Paul Donovan of UBS Wealth Management suggests we shouldn’t expect a major announcement from the ECB today:
ECB President Draghi’s extensive rehabilitation to overcome an addiction to easing seems to have paid off.
There are hopes of either 1) an announcement of the timetable to end bond buying, or 2) an announcement of an announcement of the timetable to end bond buying.
Marchel Alexandrovich, senior european economist at Jefferies, says investors want to know more than just the end-date of QE:
After more than three years of QE, and against the background of what Peter Praet judges to be improving inflation dynamics, the ECB is preparing to end its net asset purchases. Whether the formal announcement comes this week, or in July (our guess), and what profile the taper will take (a straight 3 months drawdown to zero, or something more creative) are the immediate questions.
But at this point in the process, a few months and a few extra billion in purchases either way are not crucial; the markets are more focused on how the ECB amends its interest rate guidance, any technical changes around bond reinvestments and whether Draghi delivers a relatively dovish taper by leaving the door open to the possibility of restarting the programme if the recovery were to splutter.
Markets in the red after Fed raises rates
European stock markets are in the red this morning, as central banks hog the headlines.
The FTSE 100 dropped nearly 50 points at the open (-0.6%) and there are similar losses in Frankfurt, Paris, Milan and Madrid:
This follows a down day on Wall Street, where the Dow lost 119 points to 25,201 points last night.
Traders are worried that the Federal Reserve will raise US interest rates too aggressively over the next 18 months.
The Fed is now forecasting four hikes in 2018 (we’ve had two already) and three in 2019. That would take borrowing costs up to 3.25%.
Lee Wild, head of equity strategy at interactive investor, explains:
As Fed chairman Jerome Powell acknowledges, the risk remains that officials overcook it and bring an end to the Trump trade once and for all.
Achieving the ‘not too fast, not too slow’ Goldilocks approach to monetary policy will be key to extending the equities bull run.
The agenda: ECB decision; UK retail sales
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
All eyes are on Riga as the European Central Bank weighs up whether to pull the plug on its stimulus programme, despite signs that the eurozone recovery is slowing.
The ECB governing council faces a tricky decision as it holds its monetary policy meeting in Latvia today. Its huge bond-buying stimulus programme runs out in September, so policymakers must decide whether to call time – or extend the scheme into 2019.
The ECB has bought more than €2.5 trillion bonds under its quantitative easing (QE) programme, in an attempt to fight off deflation. It’s currently committed to buying €30bn per month until September.
Hawks on the council believe the scheme has run its course, and would like to pull the plug. But, with growth slowing in the eurozone – particularly in Germany – and geopolitical tensions growing, the ECB may be reluctant to turn off the QE tap.
A decision could be delayed until July’s meeting, but at the very least the governing council must discuss the issue today. They must tread cautiously, or risk spooking the markets and triggering a sell-off.
Traders will be keen to hear Mario Draghi’s views at the press conference following the decision. President Draghi should expect questions on trade war fears, and the new government in Italy.
Konstantinos Anthis, head of research at ADS Securities, explains:
The stakes are high for the ECB President, and for many people he has to send a message that the European central bank is planning to end its asset purchases’ program and the date to start that has to be September.
There has been a lot of chatter leading up to this meeting and if, for whatever reason, Draghi fails to deliver what investors expect then the euro will be in trouble.
The ECB will also release its latest growth and inflation projections, which will help determine what they do today.
Whatever the ECB decides, they are lagging far behind their counterparts across the Atlantic. Last night the US Federal Reserve vote to raise American interest rates to 2%, and signalled that it expects two more hikes this year.
Fed chair Jerome Powell insisted that America’s economy can handle higher borrowing costs, declaring:
“The decision you see today is another sign the US economy is in great shape.
“Growth is strong, labour markets are strong, inflation is close to target.”
Also coming up
It’s been a tough few months for UK retailers, with tens of thousands of job cuts and several chains shutting down. So the latest UK retail sales figures, due this morning, could be interesting. Economists predict growth slowed to 0.3% in May, down from 1.3% in April
Plus, it’s a bad day for Rolls-Royce workers as the engineering firm announces thousand of job cuts.
- 9.30am BST: UK retail sales for May
- 12.45pm BST: ECB decision on interest rates and QE
- 1.30pm BST: ECB press conference with president Mario Draghi