The UK capped off the week’s trilogy of key data with a particularly dovish September retail sales reading.
At -0.8% the month’s retail sales figure was far worse than the (downwards revised) 0.9% seen in August. And though technically the reading was a nasty surprise, with analysts expecting a more measured -0.1%, the fact inflation hit a 5 year high of 3.0% in September, continuing to drag real wages lower in the process, means it’s really not that much of a shock.
Regardless of whether or not investors should be surprised, that slowdown further complicates the Bank of England’s impending rate hike decision. The MPC has been reticent to raise rates with household spending so unstable – even if real wages are in part suffering due to the rapid rise in inflation, something a hike could help stall – meaning September’s retail sales data will have done nothing to shift the needle to the hawkish end of the spectrum.
Understandably, then, sterling wasn’t best pleased this Thursday. Cable dropped back towards $1.315 with a 0.3% fall, while against the euro, the pound plunged 0.4%, taking the currency below €1.115 for the first time in a week despite the heightening of rhetoric between Madrid and Catalonia.
Traditionally this kind of sterling slide would be a boon to the FTSE. Yet the UK index fell 30 points as the day went on, dragged lower by the near 4.5% drop seen by Unilever (LON:ULVR), and a set of commodity stocks unimpressed with China’s better than forecast 6.6% rise in industrial production.
Elsewhere, though the euro dealt with the latest Catalan developments rather well, the Spanish IBEX did not. Madrid has stated it will move to suspend the region’s autonomy on Saturday after Catalan leader Carles Puigdemont threatened to declare independence if no talks are offered by the government. While this sent the IBEX 0.8% lower, the 0.6% and 0.5% declines seen by the DAX and CAC respectively are likely instead informed by the euro’s gains against the dollar and the pound.
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