Before the Bell: All eyes are on UK retail sales and PMI numbers today
Sentiment in stocks this week has been slowly eroded as the bullish mood that circulated on Monday has since turned a little bearish. At the start of the week, the outlook was upbeat on account of optimism connected to the vaccine rollout.
The UK confirmed that it was on track with its vaccination distribution scheme and so this lifted spirits across the board and underpinned the recovery rally. The prospect of a $1.9 trillion stimulus package from the US was in the ether too.
“In the middle of the week, the US 10-year yield hit a one-year high, which triggered worries about the possibility of higher inflation. The result was that stock markets came under a little pressure,” commented David Madden, market analyst at CMC Markets UK, this morning.
“Yesterday the bearish move gained a little momentum and losses were seen in Europe and the US. An absence of good news, combined with some disappointing corporate results, as well as mixed economic data from the US, weighed on the confidence in stocks,” Madden told City A.M.
The US jobless claims reading rose to 861,000, a four-week high. In light of the disappointing US non-farm payrolls report at the start of the month, the jobless claims news sped up the already negative move in US index futures.
The bearish move on Wall Street spilled over to Asia, where indices are in the red. A mixed start is anticipated for European markets.
Import prices in the US in January were 0.9 per cent, which was a big swing from the -0.3 per cent in the previous update, Madden pointed out. “It adds weight to the view that higher inflation is in the pipeline for the US, so those fears might resurface in the near-term.”
The US dollar index hit its highest mark in over one week on Wednesday but it cooled yesterday, as the jobs data put extra pressure on the greenback. Even though the dollar lost ground yesterday, the uptrend since early January remains intact so it could be experiencing a pause in the wider positive move, he added.
Copper racked up a nine-year high. The red metal has been trending higher lately on hopes the global economy will recover. Yesterday was the first trading session in mainland China after the Lunar New Year.
“It doesn’t seem like a coincidence that the red metal jumped after China got back to business,” Madden said.
Oil registered a new 13-month high yesterday but it rolled over on itself as the wider negative sentiment in the markets prompted profit taking. Some refineries in Texas have been shut due to the big freeze, so near-term demand woes hit crude prices.
The EIA report showed that US oil inventories fell by 7.25m barrels, a far bigger draw than expected. The update led to a short-lived rebound in oil but the energy finished in the red, Madden pointed out.
At 7am UK time, the UK retail sales report will be posted. Economists are predicting a reading of -2.5 per cent, which would be a sharp fall from the 0.3 per cent growth registered in December.
Last Friday, it was confirmed the UK economy grew by 1 per cent in the final quarter of 2020, which beat the 0.5 per cent forecast. The economy grew by 16.1 per cent in the third quarter.
“A technical recession is defined as two consecutive quarters of negative growth, so a double dip recession has been avoided for now,” Madden explained, adding that, in January, the Bank of England (BoE) warned the UK economy could contract by approximately 4 per cent in the first quarter of 2021, as the lockdown is likely to curtail economic activity.
“With respect to today’s retail sales reports, traders are already bracing themselves for poor figures so sterling is unlikely to suffer unless the update is dire,” he said.
At the same time, UK public sector net borrowing for January will be announced and the reading is tipped to be £24.5bn, down from £34.1bn in December.