Summary:
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Retail sales miss expectations in September, implied inflation remains subdued
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Brexit is likely to weigh on the pound in the weeks to come
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GBPUSD respects the support, what to expect next?
UK retail sales grew less than expected last month on falls seen predominantly in food stores but the pound did not react too much. The GBP is still expected to be driven chiefly by incoming Brexit developments, and macroeconomic readings will be probably set aside at least for the time being. Today’s data revealed that domestic-driven implied inflation stays at the relatively low levels suggesting the Bank of England is no in a rush to resume hiking rates.
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While the underlying retail sales trend seems to be unfazed, implied deflator continues slowing down suggesting that the BoE could remain in a ‘wait-and-see’ mode. Source: Macrobond, XTB Research
The data showed that headline retail sales picked up 3% in annual terms falling short of the median estimate of 3.6%. The core gauge which strips out automotive fuel rose 3.2% coming in also below the consensus. In monthly terms we got two falls by 0.8%. The overall impact was slightly improved by upward revisions concerning August. The details showed that sales in food stores were among prime reasons standing behind the sub-par release. This category fell 1.5% in monthly terms. Sales in non-specialized stores moved down 1.6% MoM. On the opposite side, there was a 1.8% increase in household goods stores despite unfavourable base effects. Let us recall that the inflation data for September came also below expectations and this move seems to be confirmed by today’s report as well. Namely, the retail sales implied deflator declined to 0.9% from 1.3% (for the gauge excluding automotive fuel). This underlines that the Bank of England could calmly wait and see at incoming data as well as Brexit developments. Note that the money market does not assign more than 50% chances for a hike until mid-2019. In terms of the Brexit thread one needs to mention the latest remarks from PM Theresa May. She said that there is an idea to create an option to extend a transition period for a few months. She expects that this period is likely to be finished by the end of the next year. Yesterday the EU leaders decided to undo an extraordinary summit in November unless EU Brexit chief negotiator Barnier makes some strides in talks with London.
The GBPUSD slid on Wednesday but the pair has recovered some its losses since then. Assuming that the pair will be able to stay above 1.3070 one may count on a pick-up toward 1.3340. However, any more impressive gains seem to be unlikely until the Brexit thread is resolved altogether. Source: xStation5
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