UK retail sales data more likely to reflect some of the ‘Brexit’ angst - SocGen

Kit Juckes, Research Analyst at Societe Generale, notes that an article in the Telegraph by UK MPC member Kristin Forbes Wait for Brexit fog to clear before interest rate cut is one factor behind sterling’s continued strength this morning, though yesterday’s ‘OK’ labour market data also played a part.

Key Quotes

“Ms Forbes argument for a “wait and see” approach to post-referendum policy-making is pretty much what the consensus expectation was until Mark Carney’s comments on June 30 “The economic outlook has deteriorated and some monetary policy easing will likely be needed over the summer” seemed a hasty reaction at the time but market-watchers simple recalibrated expectations.

Today’s retail sales data are more likely however to reflect some of the ‘Brexit’ angst and so have scope to move the market. Our forecast for a 1% m/m fall in sales volumes ex auto fuel drags the annual growth rate down to a still-strong 4.4%. Mind you, in the last 2 years that annual growth rate has gyrated in a 1.7%-7.4% range so the scope for surprises is high!

When I glance at UK real yields, down at -1.5%, I can’t help but be bearish of both sterling and (conventional) 10year gilts (at least relative to the US and Europe). The UK can’t be funded at this rate without the pound falling. Even if today’s move is a lottery dependent on how the retail sale figures turn out (albeit one where the odds favour weakness).”