FTSE 100 rebounds despite UK retail sales miss

At the end of his two-day testimony to Congress and the Senate, there seemed to be some relief on Wall Street that Fed Chair Jerome Powell wouldn’t be saying any more. Powell reaffirmed the Fed’s planned rate hikes, which did initially knock sentiment, but now stock indices look to be forming a base and the dollar appears to have formed a near term peak.

• FTSE 100 brushes off very disappointing UK retail sales (-0.5% m/m)
• It was a rough week for commodities, which fell across the week led lower by oil & copper
• Gold down after hawkish Powell testimony

Sentiment in Europe took a dive yesterday. In May, the eurozone composite PMI , considered a gauge for business activity, dropped to a reading of 54.8 and slipped further down to a reading of 51.9 in June. The level 50 separates expansion from contraction. Following the data, the DAX closed 1.7% lower, and the EUR/USD declined 0.4% from 1.0525 to settle at 1.0525 .

The market in the US felt more optimistic with the Nasdaq outperforming. This followed the Federal Reserve's testimony from Jerome Powell, where he outlined many of his growth concerns for the markets and economy. 

Oil & copper slump

Commodities like copper, often considered a barometer for global economic health, have come under pressure from fears of a world-wide recession. Copper is down over 7% and oil prices are also set to fall by 4% this week on concerns about demand destruction.

Commodity price declines that bring down inflation should eventually lower raw material costs and improve business and consumer spending. However, in the meantime the commodity prices are falling because of lower expected demand during a possible recession. Rising commodity prices have been the biggest drivers of global inflation ever since the fallout from the Russian war in Ukraine and subsequent disruption to key supply routes.

Gold

Gold dropped on the day in reaction to comments made by US Federal Chairman Jerome Powell. Powell said the Fed's inflation-fighting goal was unconditional and that recent market turbulence and weak U.S. data did not change their policy intentions. The fact that gold does not pay interest plays against it when interest rates begin moving up, as recent events have shown.

UK Retail sales

The FTSE is set to start the day higher, and GBP/USD is trading above 1.2250 but sentiment remains sluggish following the release of UK retail sales data in May. Sales fell 5% month-over-month in May, down notably from a 4% m/m increase recorded in April. 

Delving deeper into the numbers, the decline was mainly owing to slowing food store sales, which dropped 10% across the month. The data suggests that consumers are changing their shopping habits as rising inflation causes economic hardship around the world and the cost of living crisis deepens.

Despite today’s rise in the FTSE, the UK index is expected to fall around 1% across the week, after dropping 0.9% last week. In the US, futures are pointing to a firmer open. Attention will be on new home sales, which are expected to fall as mortgage rates rise and amid affordability challenges.