UK Retail Sales are set to swing back into positive territory in June, growing at an annualized rate of 2.1% after shrinking -1.6% in the year to May, the most in 17 years. A rebound in retail spending seems to bolster expectations from NIESR, a closely watched London-based think thank, that forecast the economy probably shrank just -0.4% in the second quarter, the smallest drop in a year. NIESR has argued that “the U.K. economy is now stagnating rather than continuing to contract at a sharp pace.” Notably, the apparent signs of stabilization may not translate into meaningful gains for the British Pound. Retail sales figures have exhibited extraordinary volatility since the beginning of this year: annualized receipts grew 2.6% in January, dropped -1.5% in February, then gained 0.9% and 2.7% in the following two months before plunging again in May. This suggests traders will be wary of taking even a sharp improvement at face value, waiting for a discernible trend to be established. Cues from the labor market seem to point to subdued retail activity for the time being, with the jobless rate to approach 9% by the end of next year for the first time since 1994, trimming disposable incomes and weighing on spending.
Separately, BBA Loans for House Purchases will probably continue to rebound in June, extending a move higher that began after the metric set a record low in November 2008. The metric closely tracks the GfK measure of consumer confidence; indeed, indeed, 24-month rolling studies show the two are 96.6% correlated. Consumer confidence rose to a 14-month high in June, suggesting the BBA report will follow.
On balance, risk trends are likely to remain as the primary driver of forex price action. A number of notable earnings releases are on tap in European hours: ABB Ltd, the world’s largest maker of electricity grids, and Cie. de Saint-Gobain SA, Europe’s top supplier of construction materials, are set to report that profits fell by a staggering 42% and 83% respectively in the second quarter. Credit Suisse, Switzerland’s largest bank by market value, may help support shares in the Financials sector with expectations calling for the second consecutive quarter of profits driven by trading revenue.
Asia Session Highlights:
Japan’s Merchandise Trade Balance surplus expanded for the third consecutive month, rising to 508 billion yen in June from 298.2 billion in May. We argued the likelihood of such an outcome in our Japanese Yen weekly forecast, noting that the abysmal job market will surely continue to weigh on imports. Indeed, inbound shipments tumbled -41.9% from a year before while exports shed -35.7%. More of the same is likely in the months ahead as unemployment continues to push higher: a survey of economists conducted by Bloomberg suggests the jobless rate surpassed 5% in the second quarter and will approach the 6% mark by the second half of 2010 while minutes from the last meeting of the Bank of Japan revealed policymakers expect consumption to remain weak as “the employment and income situation [is] likely to become increasingly severe”.
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