FTSE falls as UK retail sales tumble

Europe is heading for a weaker open after steep losses on Wall Street and ahead of a busy economic calendar.

• Wall Street tumbled on fears of the Fed hiking rates aggressively in the first half of the years
• FTSE falls as UK consumer confidence & retail sales slump
• PMIs are expected to remain resilient, EUR edges higher

The three leading indices on Wall Street closed lower after hawkish comments from Federal Reserve Chair Jerome Powell.

Powell signalled a 50-basis point rate hike in the May meeting. However, before he spoke, this was already over 90% priced in. What spooked the markers is the prospect that the Fed will raise interest rates aggressively for longer, with another 50 basis point interest rate rise in June and potentially a further oversized rate again later in the summer.


Consumer confidence, retail sales

In Europe, the FTSE underperformed its peers yesterday and is heading for over 1% losses on the open after data revealed that consumer sentiment plunged to its lowest level since the 2008 financial crisis. The GFK monthly consumer confidence report dropped to -38 in April, down from -31 in March, highlighting households’ growing concerns surrounding the cost of living crisis, slowing growth, and the fear that the situation will continue to deteriorate.

Given the dismal consumer morale, it is hardly surprising to see that retail sales tumbled by a more than expected -1.4% MoM in March, down from a -0.5% decline in February and well below the -0.3% forecast. The data adds to evidence that the UK economic recovery is stalling after the jump in energy and food prices has brought with it a detrimental squeeze on households’ spending power.
With inflation set to rise further, the outlook for consumer confidence, retail sales, and economic growth appears bleak.


PMIs

Looking ahead, attention will shift to PMI data which, compared to the dire picture elsewhere in the UK economy, are actually expected to hold up well in April. Expectations are for activity in the service sector to slow slightly to 60, down from 62.6. Meanwhile, the manufacturing PMI is expected to slip marginally to 54, from 55.2. The level 50 separates expansion from contraction.

Given the rise in input costs and squeeze on incomes, these figures look somewhat optimistic, particularly those for the service sector. Disappointing data could drag on sentiment, pulling the FTSE and the pound lower.

In Europe, expectations are for a similarly resilient performance with the composite PMI for the eurozone, which is often considered a good gauge for business activity, is expected to tick lower to 53.9 in April, down from 54.9 in March.


EUR

The EUR has shown resilience this week against the USD and the pound, boosted by hawkish comments from ECB officials. Even some of the more dovish ECB members have hinted toward a July rate hike. With France heading to the polls on Sunday to vote in the Presidential election, demand for the common currency could remain muted. A move above 1.0935 is needed to create a higher. Sellers could look for a break below 1.08 and 1.0750 for steeper losses.