UK Retail Sales (NOV) (9:30GMT) MoM YoY Actual: 0.3% 3.2%Expected: 0.0% 3.0% Previous: 0.9% 3.9%
UK CBI Industrial Trends (Orders) (DEC) (11:00GMT) Total ExportActual: -5 -5Expected: -5 n/aPrevious: -6 3
How Did the Markets React?
Economic data out of the UK was mixed today, as the retail sector proved far more resilient than industrial businesses. First, retail sales in the UK unexpectedly beat expectations for the second month in a row in November as the figure rose 0.3%. A breakdown of the data shows that clothing and household goods showed strong increases, while non-store sales were up a full 2.9%, signaling robust Internet sales. The data runs counter to recent CBI and BRC data, which showed a marked slowdown in consumer spending. Nevertheless, the today’s retail sales report bodes well for the sector amidst the holiday shopping season. Later in the morning, the UK CBI industrial orders survey hit the tape and posted a slight improvement to -5 in December from -6, while the export orders index fell to -5 from +3. However, output expectations surged to +11 from +5, boding well for the sector ahead of Q1 2007 following what is becoming a weak Q4 2006. The data indicates that resilient Euro-zone demand should underpin demand for UK products in coming months, while a strong pound and slowing US growth could weaken exports to other regions. The FX market was far more sensitive to the economic data, while fixed income only took the retail sector report into account. Meanwhile, UK equity markets ignored the data as attention was focused on the banking and mining sector.
Bonds – UK 10-Year Gilts
Prices on 10-year gilts remain on the defensive after a bit of a bounce first thing this morning, but the release of UK retail sales sent gilts plummeting down to 94.845 as consumption picked up more than expected for the second month in a row. After yesterday's aggressive selling and new low, the very steep decline seen throughout the past week is back on track and after this latest setback for bulls, it may take quite a bit of momentum to turn things higher again.FX – GBP/USD
The British pound jumped about 30 points to 1.9688 immediately on the release of better-than-expected UK retail sales, but price gently eased back over the course of the next hour. Subsequently, the weak export component of CBI industrial trends sent Cable reeling, with price falling 50 points to a session low of 1.9620 as the manufacturing sector continues to show signs of instability. Nevertheless, London trading balanced out with GBP/USD returning towards Wednesday’s New York close of 1.9666 as economic growth in the UK remains broadly on track. Additionally, indications of rising price pressures earlier in the week has helped keep Cable bid as BOE hawks will be wary of wage-induced inflation in early 2007.Equities – FTSE 100 Index
UK equities ignored today’s economic releases and opted to focus on the banking and mining sectors, and by the London afternoon, the FTSE 100 traded 0.2% higher at 6,205.1. HBOS, Britain's biggest mortgage lender, said that 2006 profit will beat analysts' estimates, sending shares up 2% to 1,106 pence. Additionally, the bank said full-year earnings will beat analysts' median estimate for pretax profit of 5.35 billion pounds and that the firm has plans to buy back as much as 500 million pounds of stock next year. Meanwhile, Xstrata advanced 3.7%to 2,465 pence after Morgan Stanley raised its share price estimate for the mining company by 5.9% to 3600 pence. This subsequently sent BHP Billiton, the world's largest mining company, surging 1.9% to 951 pence and Rio Tinto, the world's third-biggest mining company, up 2.1% to 2,841 pence.