UK retail sales fall but consumer confidence rises again

OVERNIGHT

Asian equity markets are lower this morning following declines yesterday across European and US markets. Several US Federal Reserve policymakers warned yesterday that interest rates are likely to rise again in early May but also asserted that they will probably soon ‘pause’ their tightening and assess the impact of their moves. Core inflation rose in Japan in March, while the composite PMI index held well above the 50 expansion level. The data points to the possibility that the Bank of Japan could soon raise interest rates. In Australia, the April composite PMI index moved above 50, rising to its highest since last June.

THE DAY AHEAD

Earlier this morning, the GfK consumer confidence measure for the UK posted a third consecutive monthly gain in April as it reached its highest level since February 2022. Consumers were more optimistic both about their own finances and the general economic situation. Meanwhile, just released UK retail sales data revealed a 0.9% fall in March. That follows two consecutive monthly increases in excess of 1% but is a warning sign that consumers are still being squeezed by cost of living constraints.   

The rest of today’s data calendar is mostly made up of April Purchasing Managers Indices (PMI) reports. So far this year these have suggested that economic activity has been picking up, particularly in the UK and the Eurozone, led by the services sector. Today’s results will also be watched for indications of whether inflationary pressures are continuing to ease. In the UK, both the manufacturing and services indices were lower in March than in February. For services the level was still a relatively strong 52.9, while the manufacturing index fell further below the 50 expansion mark to 47.9. For April, we expect the manufacturing PMI to pick up to 49.2 and services to 53.2. That would move the composite indicator further into expansionary territory signalling growth in the economy as a whole.

For the Eurozone we expect the services index to have fallen to 54.0 in April from 55.0 and for manufacturing to rise to 48.0 from 47.3. That would also leave the Eurozone composite index in expansionary territory and would be consistent with the economy continuing to grow in early Q2. In the US, the manufacturing PMI is forecast to rise to 49.5 from 49.2 but following the sharp rise in the services index in March – to a nine-month high of 52.6 – it is forecast to fall back to 51.5. The US PMIs typically get less attention than the more established ISM survey but with markets on recession watch this time may be an exception.

MARKETS

US Treasury yields fell yesterday after weaker than expected economic data boosted hopes that the Fed may soon stop raising interest rates. UK gilts also fell yesterday but they are still up on the week following stronger than expected data outturns for UK inflation and wages. In currency markets, sterling is down this morning both against the euro and US dollar but is up against both on the week.