Retail sales beat; GBP remains near recent highs

Sterling continues to trade near a 2-month high against the US dollar around the $1.32 mark this morning, aided by the release of some better than expected consumer spending figures. The FTSE is little changed on the day after ending Wednesday night at its highest level in a fortnight as the index looks to join in the counter-intuitive rally seen in global stocks since the US-China trade tensions rose further overnight on Monday.  

 

Retail sales provide high street tonic

This year has seen a near constant negative news flow as far as high street retailers are concerned but the latest retail sales figures will provide a welcome tonic, with the number for August showing an unexpected rise of 0.3% in month-on-month terms. The reading is all the more pleasing given that the prior month was also revised higher to 0.9% from an already strong 0.7%, in addition to the fact that most analysts expected a contraction - probably due to the prior month being such a strong reading and benefiting from 1-off factors such as positive world cup related spending on beer, waistcoats etc!

 

Pound supported by more strong data

A better reflection of the bigger theme may be found in looking at the 3 months to August figures which showed a 2.0% growth, with food and household goods outperforming compared to last summer. Online spending set a new record of its proportion of total sales with almost 1 in 5 pounds being spent online during this period. Following on from yesterday’s higher than expected inflation reading today’s data provides more good news for the pound and has kept the currency close to 2-month highs against both the US dollar and the Euro. Having said that, economic data remains of secondary importance compared to Brexit developments and the initial noises coming out of Salzburg seem to suggest that both parties remain some way from agreeing terms.

 

Brexit developments to drive the Pound

Theresa May has reportedly told EU leaders that if an agreement can’t be reached by the end of a special Brexit summit pencilled in for mid-November then the UK would not seek to extend negotiations. Whether this is a negotiating tactic to try and strong-arm the EU into accepting a deal closely reminiscent of chequers or the actual government standpoint remains to be seen, but what can be said with a high degree of certainty is that things are coming to a head as far as Brexit is concerned and the developments in the coming weeks and months will be by far and away the biggest driving force on the strength of the pound going forward.