Slow rise for retail sales in June


Retail sales rose just 0.1% in June following a soft 0.2% result in May. 

For the year to June, sales rose 2.8%, well below the long run average of 4.5%, and down on the 3.4% sales growth seen in the year to May.

In annual terms, this result was the weakest growth since July 2013.  When excluding the impact of prices, retail spending does not look as quite problematic. 

Spending volumes rose a modest 0.4% in the June quarter, but this was still the weakest quarterly growth in two years.  The annual pace of growth at 1.9% was the weakest in three years.

Share Markets: 

The major US share market bourses traded narrowly overnight ahead of a key jobs report.  The Dow Jones finished 3 points lower and the S&P 500 ended up half a point higher. 

Across the Atlantic, the UK FTSE 100 index ended strongly, up 1.6%, after the Bank of England (BoE) cut interest rates for the first time in seven years.

Interest Rates: 

Global bond yields generally fell overnight, after the BoE provided more stimulus than the market was expecting. 

UK 10-year gilt yields fell from 0.80% to a record low of 0.63%. US 10-year treasury yields fell by 4bp to 1.50% and US 2-year yields fell to 0.64%. Market pricing of the Fed funds rate fell slightly, implying around a 20% chance of a rate hike in September, a 40% chance by December, and 100% not until late 2018.

Foreign Exchange:

GBP was the underperformer overnight following the BOE surprise.  It fell from USD1.3340 to USD1.3103. 

The BoE's dovish guidance and bearish outlook for growth leaves the pound at risk of falling further in coming months.

The US dollar index is slightly firmer. EUR/USD ranged sideways between 1.1114 and 1.1148.  USD/JPY also ranged sideways between 101.01 and 101.64.

AUD/USD outperformed, extending the day's rise from 0.7600 to a two-week high of 0.7641.

NZD similarly rose from 0.7150 to 0.7201, but slipped back to 0.7175.  AUD/NZD nudged higher from 1.0620 to 1.0637.


Oil prices rose for a second straight day amid speculation that traders who had bet on falling oil prices were buying back positions.

United Kingdom: 

The BoE exceeded the market's easing expectation by cutting 25bps and releasing a multi-pronged easing package. 

The BoE cut rates to a record low of 0.25% from 0.50%.  Its forward guidance suggested more rate cuts will follow if the data follows their forecasts.

The BoE is also to buy a further GBP 60 billion of Gilt purchasing under their Asset Purchasing Programme.

Further, the BoE launched two new schemes. The first is to buy 10 billion pounds of high-grade corporate bonds. 

The second, a Term Funding Scheme (TFS), is to ensure banks keep lending even after the rate cut.  The TFS is potentially worth up to 100 billion pounds.

The Bank describes these actions as being mutually reinforcing and all of them have the scope for further action.

BoE Governor Carney stated in the subsequent Press conference that the Bank viewed Brexit as materially impacting the economy and heralded a "regime change for UK" but countered this by praising the flexibility and underlying strength of the economy.

United States: 

Initial jobless claims rose by 3k to 269k in the week ended July 30.  This level still underscores improvement in the labour market.

Factory orders fell 1.5% in June, but excluding the volatile component of transport orders rose 0.4%.  The strength of the US dollar and sluggish global demand has reduced demand for factory-produced goods.