UK Retail Sales fall barely grow in June. Eyes on US data and earnings

<p>The FTSE 100 traded higher by 10 points despite shockingly bad retail sales figures in the UK as most investors continued to cast their eye […]</p>

The FTSE 100 traded higher by 10 points despite shockingly bad retail sales figures in the UK as most investors continued to cast their eye towards US economic data and corporate earnings.

The FTSE 100 traded in a narrow range of just 24 points, echoing the traditional summer lull that typically impacts the stock markets when most traders are away on holiday. Yet still, for those that are in the markets, there remains a distinct eye towards data out of the US in an effort to help gauge the Fed’s appetite for more stimulus whilst US earnings continues in full throw.

US earnings watch: Morgan Stanley, Google and Microsoft Today we see more major US firms report their respective earnings and with these reports likely to move the market both today and tomorrow, it is no surprise that European markets have traded relatively flat today.

Morgan Stanley reported net revenues of $7bn and income from continuing operations of $0.28 earnings per share (EPS), which fell below market expectations of $0.43 EPS. Morgan Stanley shares fell in pre market trade as a result.

Google and Microsoft will report after the close of the US trading session and both reports will play a role in how the FTSE opens tomorrow as investors will use the figures as further evidence of a slowdown in global growth. Google is expected to report an EPS of $10.05 and Microsoft an EPS of $0.62.

US economic data Economic data in the form of US jobless claims, Existing Home Sales, Leading Indicators and the Philly Fed will also be watched by the market and will likely play a role in the tone of the European close.

UK Retail Sales slump puts greater emphasis on Olympics Data out in the morning session saw UK retail sales slow severely to barely grow by 0.1% from a previous upwardly revised growth of 1.5%, with sales hit by the bad weather in June. Sales fell 0.7% for the quarter, marking the biggest 3-month drop in UK retail Sales since March 2010.

It is important that we take several variables into account when analysing these retail sales numbers.

As well as the fact that inflation subsided more sharply than expected, we can put the lack of spending over the last month to the terribly wet weather leaving shoppers uninspired to hit the high streets.

The lack of weather induced footfall forced retailers to bring forward their summer sales in an effort to drive sales and whilst this meant that volumes increased, the quality of sales was somewhat lacking, forcing sales growth to slow 1.4% month on month. It will now be very importance that footfall bounces back if or when the weather picks up and the Olympics arrive.

Whilst there is the risk that the wet weather has increased one’s appetite to fly abroad this summer, it is hoped that anaemic wage growth will keep UK holiday makers at home.

There is now huge pressure on the Olympics and the swathe of tourists to help plug the hole in spending on the high street that a wet June left. UK consumer morale needs to pick up and whilst the Olympics can help to offset a drop in UK spending, a successful games for UK athletes could well inspire a beaten down UK consumer.

Both the pound sterling and the FTSE fell off somewhat in the immediate aftermath of the UK retail sales disappointment but soon recovered lost ground as the afternoon trading session began.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.