UK retail sales drop sharply in May

UK retail sales fell 2.7% m/m in May, with the outturn materially weaker than consensus expectations for a 0.5% decline. While there was broad-based weakness across retail categories, there was a notable 5% drop in food sales. The weaker figures will add to concerns of a slowdown in UK economic activity in the second quarter, after the economy surprised on the upside at the start of the year.

A provisional June print of the European Commission’s measure of Eurozone consumer confidence declined to a value of -15.3, from -15.1 the month prior. The print was likely dragged lower by geo-political tensions and a lack of progress with the US administration on a possible trade deal. The outturn was weaker than markets had been expecting, with the measure remaining well below its long-term average.

The US military attacked three nuclear facilities in Iran in a further development of the Israel-Iran conflict, striking facilities at Fordow, Natanz and Isfahan. Regional travel has been affected by the strikes with major air carriers - including United, Air Canada, Air France-KLM and Finnair - halting flights to Dubai. In addition, American Airlines has stopped service to Qatar while British Airways has suspended flights to Bahrain.

The US Conference Board leading indicator fell 0.1% in May, marking a significant improvement from the downwardly revised 1.4% fall the month prior. In the April print all ten sub-components showed declines on the month, in sharp contrast only four recorded falls in May.

Today’s Economic Data and Events

• 12:00 EC HCOB composite PMI June (P): forecast 50.5
• 12:30 UK S&P composite PMI June (P): forecast 50.5
• 17:45 US S&P composite PMI June (P): forecast 52.1

Fixed Income

• US Treasuries rose on Friday following comments from Fed Governor, Christopher Waller, who suggested that the FOMC may elect to cut rates as early as July. The yield on the 2yr treasury fell 3bps on the day (and 4bps on a week-on-week basis) to reach 3.9077%. There were also declines in the 10yr yield, which fell 2bps to 4.3751%.
• Moves in European bond yields were mixed on Friday. The 10yr Bund remained broadly unchanged at 2.516%, while the 10yr Gilt yield rose by less than 1bps to 4.5361%.

FX

• The US dollar spot index fell against a basket of peer currencies on Friday, declining 0.2%. EURUSD rose 0.2% to 1.1523, GBPUSD fell 0.1% to 1.3451, and USDJPY rose 0.4% to reach 146.09.
• Moves in emerging market currencies were mixed with USDINR down 0.17% at 86.59, while USDTRY added 0.12% to 39.6722.

Equities

• The Dow Jones ended Friday only fractionally higher, gaining just under 0.1% on the day. The S&P 500 and NASDAQ, in contrast, fell 0.2% and 0.5%, respectively, on news of high-level talks between the US and Japan being cancelled.
• In Europe, the Euro Stoxx 50 index gained 0.7%, the FTSE lost 0.2% and the DAX gained 1.27%.
• In local markets the DFM rose 1.6% while the ADX was 1.4% higher.

Commodities

• Oil prices fell back on Friday, with Brent falling 2.3% to end the day at USD 77.01 /b and WTI declining 0.3% to USD 74.93/b. Futures have however risen sharply in early morning trade following US military strikes on Iranian nuclear sites over the weekend.