UK retail sales fall in October

The volume of UK retail sales fell 0.3% m/m in October, significantly below consensus expectations for a 0.4% m/m gain. The October decline was however smaller than the downwardly revised 1.1% fall in retail sales seen in September. While some of the weakness may have been due to particularly wet weather in the second half of the month, comments from the ONS suggesting that the 0.3% m/m fall in food sales were due to consumers electing to buy cheaper items and prioritise spending, may point to a more structural shift in UK economy.

The final release of Eurozone CPI confirmed that the headline measure fell to 2.9% y/y in October from 4.3% September. Core CPI also fell to 4.2% y/y from 4.5% in October. The bulk of the decline in inflation has thus far come from core goods categories, while services inflation has proved much stickier.

Despite financing costs, US housing starts beat expectations, rising to 1.9% m/m in October to 1.37m. Applications to build also rose 1.1% m/m in October, suggesting that home builders are set to benefit from a general lack of supply of homes for resale, with current owners unwilling to have to finance purchases at significantly higher rates.

Argentina has elected Javier Milei as president, winning over 55% of the votes. During campaigning Mr Milei promised to drastically cut government spending in a bid to help reduce runaway inflation. He also suggested a variety of significant reforms, including replacing the Peso with the US dollar and closing the Argentinian central bank.

The week ahead will likely be dominated by a few key events. The first is the Autumn Statement, due on Wednesday, which sets out the UK government’s updated plans for the budget. Although the Chancellor of the exchequer, Jeremy Hunt, had previously ruled out any tax cuts, speculation is rising that lower debt servicing costs and better-than-expected tax revenues have provided the Chancellor sufficient room to announce some business-orientated tax reductions. The Fed and the ECB are also both set to release minutes from their last monetary policy decisions this week. The Fed minutes, due to be published tomorrow, should provide some insights into the committee’s decision to keep rates unchanged at the 1 November meeting, as well as the decidedly more dovish comments from Jerome Powell in the press conference that followed.

Today’s Economic Data and Events

19:00 US Leading index October: forecast -0.6% m/m

Fixed Income

• Short-end US Treasury yields edged up on Friday, with the 2yr rising 5bps to end at 4.8855%. Despite the uptick on Friday, 2yr yields were sharply lower when compared to the opening on Monday, declining by just over 17bps w/w. The 10yr yield saw a similar fall over the course of the week, dropping almost 22bps w/w, to reach 4.4354%. Demand for Treasuries rallied on the back of softer US inflation and labour market data adding fuel to the assessment that the Fed is done raising rates.
• Moves in yields on major European sovereign bonds were mixed on Friday, with the 10yr Gilt falling 5bps to 4.1009% while the rate on German 10yr Bunds remaining broadly unchanged.

FX

• The dollar declined against a basket of peer currencies on Friday, adding to losses earlier in the week. EURUSD gained 0.58% on the day, and 2.14% w/w, to reach 1.0915. GBPUSD rose to 1.2462 on Friday, a 0.39% gain on the day and a 1.92% rise w/w. JPYUSD fell sharply on Friday, declining 0.73%, to 149.63.
• Commodity currencies were also stronger against the dollar on Friday, reversing some of the losses seen on Thursday. AUSUSD rose 0.7% to reach 0.6515, while NZDUSD gained 0.34% to 0.5991. CADUSD fell 0.23% to 1.3723.

Equities

• There were broad-based, if small, gains across US equity markets on Friday, adding to gains seen since the start of the month. The Dow Jones rose 0.01%, the S&P 500 gained 0.13% and NASDAQ increased 0.08%.
• There were also gains across much of Europe on Friday. The Eurostoxx 50 gained 0.89%, the CAC 40 rose 0.91% and the DAX increased 0.84%. The FTSE 100 also ticked up, gaining 1.26% on the day.
• Locally, the DFM closed 0.25% higher while the ADX fell 0.38%.

Commodities

• Oil prices gained on Friday, offsetting some of the weakness seen on Thursday, with reports suggesting that Saudi Arabia may elect to extend voluntary production cuts into the new year. Brent futures rose 4.12% to close at USD 80.61/b while WTI gained 4.1% to USD 75.89/b.