FTSE 100 eases back despite sterling weakness

A disappointing retail sales figure has done little to help elevate an already depressed pound. However, that weak pound has done little to lift the FTSE, with markets continuing to feel the residual effects of Wednesday’s FOMC meeting. 

• European markets ease back on central bank fears. 

• UK retail sales highlight a decline in food sales. 

• Tesco growth slows, but online sales impress.

European markets are heading towards the weekend on the back foot, with declines for the likes of the Dow and S&P 500 highlighting the ongoing concerns that rising inflation could soon curtail the expansive monetary policy mix around the world. Despite promises that central banks will remain accommodative, we are evidently moving towards a phase that will become increasingly dominated by attempting to quantify just how long we have left until the pendulum starts to swing back towards monetary tightening. With Norway’s central bank laying out plans to start raising rates in September, we are evidently seeing growing confidence that the worst is behind us and thus normalization will be required to avoid overheating. 

The pound has been hit hard in the wake of Wednesday’s FOMC meeting, but about of disappointing retail sales figures has further increased the pressure on sterling this morning. Nonetheless, the decline in May retail sales is perhaps more indicative of a shift in spending habits rather than a decline, with consumers opting cut back on food purchases (-5.7%) in favor of eating out. That pressure on food sales does bring the supermarkets into focus, while data from Tesco further highlighted how demand growth has been slowing in recent months. However, while questions have been asked of in-person demand at Tesco, digital capacity improvements have facilitated a whopping 22.2% in online sales compared with last year.  

Ahead of the open, we expect the Dow Jones to open 26 points lower, at 33,797.