Market Update

The British pound tumbled this morning, following data that showed slumping retail sales and record-low confidence as high inflation has cut into consumer spending.

Retail sales volumes slid 1.4% from February, the Office for National Statistics said Friday. Economists polled predicted a drop of 0.2%. Sales were revised to a 0.5% drop in February, higher than the 0.3% decline previously reported.

Looser COVID-19 restrictions weighed on online shopping, while surging gas and diesel prices cut into car-fuel sales. A steep 7.9% fall for non-store retailing — mostly online sales — extends a downward trend in place that intensified sharply in 2021 as those COVID rules were eased.

But that doesn’t explain all the weakness, with every month that inflation runs well above wage growth, more households will be dipping into savings to manage finances. U.K. inflation has running at a 30-year high of around 7%.

Separately, confidence among British consumers fell a fifth straight month in April to the lowest level since the 2008-09 financial crisis, as high inflation cut into real incomes for households, according to a survey by research firm GfK.

Jerome Powell confirmed exactly what traders have been betting on for weeks, although slightly dovish compared to the 75bps hike expectation; he confirmed that a “50bps hike will be on the table for the May meeting”.

Markets are pricing in two 50bps hikes in both May and June with possibilities of a 75bps July hike if need be. Powell’s comments sent U.S equities lower after seeing gains earlier in the day.

Inflation in the Eurozone came in lower than expected at 7.4% vs 7.5% YoY for March with core lower as well at 2.9% vs 3.0%. President Lagarde spoke yesterday mentioning that the June ECB meeting will be “key” for the end of their asset purchase program and potentially the beginning of their rate hikes. This however failed to have any effect on euro rates across the board.

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