The pound has come under some selling pressure this morning despite a better than expected retail sales release. The fall in sterling has boosted stocks however with the FTSE 100 rising by approximately 35 points to trade at its highest level since the end of June.
Rebound in retail sales fails to boost the pound
UK retail sales in June bounced back after showing a month on month increase of 0.6%. The prior print of -1.2% was was also revised higher to -1.1%, the fourth consecutive month that the previous reading has seen a favourable adjustment. It is no secret that there has been growing concerns surrounding retailers since the Brexit referendum, a viewpoint that is supported by this morning’s release of annual results from Sports Direct (LON:SPD) which showed a drop of more than half in underlying profits.
Better times ahead for retailers?
There is a sense that some of the doom and gloom may be a little overdone and going forward the market is a little too pessimistic with regard to the future prospects of retailers. This may be evident in the reaction to Sports Direct’s results with the stock climbing by more than 8% to top the FTSE 250, despite announcing a substantial decline in profitability. It should be pointed out that the release did have some bright spots too, with a 12% increase in revenue and founder Mike Ashley also revealing a new chief financial officer in Jon Kempster.
ECB to shake markets out of summer lull?
The leading UK stock market has traded in a relatively narrow range for the past couple of weeks with an apparent summer lull taking effect. For the month of July the FTSE had been in a 150 point range although today’s drop in the pound has seen the market attempt to break higher. Shortly after Midday, the ECB rate decision and press conference could well provide some fireworks and should the outcome of the event provide a boost to stocks on the continent, then a resumption of the rally seen since the French election could well be in the offing.
More upside ahead for the single currency?
The Euro has been creeping higher in recent months as the surge in populism that some believed would disrupt the union has failed to manifest with both the Netherlands and, more importantly, French elections providing pro-European outcomes. Given the supportive political backdrop and strong economic data for the region there is growing speculation that the ECB will look to reign in their current monetary stimulus. Any allusions to this from president Draghi this afternoon in Frankfurt could provide further fuel to the recent rally in the Euro which ended last week at its highest against the US dollar since the beginning of 2015. However Euro bulls should be warned that speculative positioning in the market is approaching extreme levels and should Draghi fail to deliver a hawkish message then there could be some profit taking and a swift swoon for the single currency.