Trade talk remains the key driver; US and UK consumer spending tops estimates

Summary:

• Markets remain highly sensitive to trade reports

• US Retail Sales top estimates

• UK consumer spending remains solid; GBP gains

• Wall St. aims to recover after worst day of the year; Alibaba gains after strong earnings release

• DE30: Technical Overview

There’s been two clear moves across multiple asset classes today after the latest developments on the trade front with this situation remain at the front and centre of traders minds. First some positive noises from Beijing in which reports claimed that Xi and Trump are in touch via meetings, phone and letters caused a swift rally in US benchmarks with the S&P500 jumping over 50 points, while US bonds and Gold fell back. However, not long afterwards a radio interview from the US president saw these moves pared as Trump said US-China trade deal has to be "on our terms". All-in-all nothing has really changed on this front but the market is clearly very sensitive to this at present. 

A plethora of data from the US has painted a better than expected picture for the world’s largest economy with both consumer spending metrics and manufacturing figures beating consensus forecasts. The data came in as follows:

• US Retail Sales M/M: +0.7% vs +0.3% exp. 0.3% prior

• Core Retail Sales M/M: +1.0% vs +0.4% exp. +0.3% prior 

• Philly Fed manufacturing index: 16.8 vs 10.1 exp. 21.8 prior

• Empire Fed manufacturing index: 4.8 vs 2.1 exp. 4.3 prior

US indices have begun a little higher this afternoon, after Wednesday’s session saw the Dow Jones Industrial Average (US30 on xStation) have its worst day of the year. The market posted a drop of 800 points during cash hours (just over 3%) in what is in fact the 4th largest daily drop ever in points terms.

One stock enjoying a bright start to the session is Alibaba after the e-commerce giant posted a better than expected set of results for the second quarter. Revenue of 114.92B yuan ($16.74B) represents an increase of 42% year-on-year and well above the 111.73B yuan ($16.28) expected according to Refinitiv. However, this pace of growth is below the 61% seen in the same period last year. Diluted earnings per share was 12.55 yuan vs 10.25 yuan expected.   Annual active consumers on Alibaba’s China retail marketplaces reached 674 million, an increase of 20 million from the 12-month period ended March 31, 2019. The company said that over 70% of those new consumers were from less-developed cities, highlighting its push into lower tier Chinese cities. The stock has begun higher by around 3%. 

The UK consumer continues to show impressive resilience to the slowing economy and political uncertainty with retail sales figures for July topping estimates. A reading of +0.2% marked an unexpected rise, against consensus forecasts for a print of -0.2%. THe prior reading was revised lower by 10 basis points to +0.9%. This is the 6th time this year that monthly figures have been better than expected, with strong growth of 6.9% seen in non-store retailing. 

Another bright spot was department stores where growth increased for the first time in 2019 after 6 consecutive monthly declines. There’s been a little uptick seen in the pound after the release, but as was the case for yesterday’s inflation figures and Tuesday’s wage numbers, economic data remains of secondary importance for sterling.   

A technical overview of the DE30 can be seen in full here.