August 12, 2022

Daily Report 12/08/2022

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There were no major  domestic developments during Thursday with markets continuing to fret over the UK outlook, especially given on-going fears over the forthcoming jump in retail energy prices which is due to come into effect at the beginning of October. UK gas prices increased to August highs on Thursday which reinforced concerns over the outlook. There was further strong pressure to provide additional support to households, but there was important political inertia given that a new Prime Minister will not be appointed until early September. There was also no headway in talks between energy companies and the government. Significantly, the UK currency was unable to draw support from firm global risk conditions which suggested an important lack of underlying confidence.

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Although retail sales in many other eurozone countries have displayed similar downward trends, Germany’s larger exposure to energy supplies from Russia and uncertainties over energy costs during the coming winter have a greater impact on German consumers. As a result, retail sales (in real terms) in the country declined by 8.8% y-o-y in June, the largest drop in decades. Some of the reduction could be attributed to pent-up travel demand and increased spending on holidays as pandemic restrictions ease. While the sector performance is still aligned with our base-case annual expectations in nominal terms for the year, we anticipate further cost of living pressures.

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US producer prices declined 0.5% for July compared with expectations of an increase of 0.2% with the yea-on-year increase slowing to 9.8% from 11.3% previously. Underlying prices increased 0.2% on the month with the annual rate slowing to 7.6% from 8.4%. The data reaction was much more muted than for Wednesday’s CPI report, but the weaker than expected data did feed through into the market narrative that inflation pressures were in the process of peaking. Initial jobless claims increased to 262,000 in the latest week while the previous week’s figure was revised down to 248,000 from 260,000. This was close to market expectations and the highest reading since January while continuing clams edged higher to 1.43mn from 1.42mn.

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14:00 Michigan Consumer Sentiment Index (Aug)   Forecast 52.5   Previous 51.5