Equities dive as risk-off prevails amid rising geopolitical fears

After the hefty sell off in the previous session, the FTSE had a muted start to Thursday, before sharply extending losses as traders react to growing geopolitical concerns and a stronger pound on the back on impressive UK retail sales figures.

Retail Sales Jump in April

Retail sales jumped in April by 1.3% month on month, significantly ahead of the 0.4% expected and ahead of the 0.5% decline in March. On an annual basis, retail sale jumped 1.5% smashing expectations of a 0.1% increase and ahead of March’s upwardly revised 1.3% increase. The strong rebound in retail sales was the injection of confidence that the pound was so is need of to pick it up off recent 5-month lows. A slew of weak data, most recently the slide in core inflation to just 2.1% has dragged the pound to within touching distance of $1.33, however today it briefly retook $1.34.

Whilst the pound has moved higher we haven’t seen a sustained move above $1.34 as traders acknowledge that the increase in sales in merely a reaction to harsh weather conditions earlier in the year, rather than due to a more serious fundamental change to the economy.

It would be wrong to assume that today’s jump in retail sales comes off the back of a less pressurised consumer. Although wage growth is once again outpacing inflation and the squeeze on the consumer has eased, it will take time for consumers to really notice any difference and increase spending on the back of this. Today’s surge in sales is simply the reversal of lower sales in March following unseasonably harsh weather conditions.

Trump Cancels Summit with North Korea

Optimism following the equity friendly Fed was short lived with US stocks plummeting in early trade after Trump called off the Summit with North Korea. Trump’s cancellation of the meeting comes just hours after North Korea destroyed its nuclear testing site, a move which is likely to rile Kim Jong Un.

With trade war fears with China still circulating, Trump aggravating the global community with potential tariffs on the automobile industry and now a cancellation of the Summit with North Korea the geopolitical climate is looking extremely fragile and this is clearly unnerving the markets.  Traders are taking risk off the table, selling out of global equites whilst flows into safe havens such as the Japanese Yen and gold are on the up. Whilst the Japanese yen is over 1% higher, gold has pushed back above $1300 for the first time in over a week.

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