UK retail sales post surprise rise

Chris Scicluna
Emily Nicol

Risk appetite firmer as China cuts 5-year loan rate; European govvies weaker on stronger German PPI and UK retail data
After a torrid couple of days, market sentiment has firmed somewhat today, with US stock futures up more than ½%, European equity markets opening higher, and Asian stock markets across the board ending the week on the front foot. Sentiment was supported by a 15bp reduction in China’s 5-year loan prime rate to 4.45% – seemingly to support the real estate market and suggesting further action to come – although the 1-year rate was left unchanged at 3.70%. With confidence bolstered, China’s CSI300 closed up 2% to be up more than 2¼% higher on the week. And the Hang Seng is currently about 2¾% higher on the day to be up almost 4% from a week ago. With a rise in Japanese core inflation to just above the BoJ’s target broadly in line with expectations, the Topix rose 0.9% to be up 0.7% on the week. By and large, the improved market mood has translated itself to higher government bond yields, with UST yields up to 2½bps higher but euro govvies and Gilts somewhat weaker than that after German producer price inflation rose to a new high and UK retail sales posted an unlikely gain despite a record low reading for consumer confidence. In the Asia-Pacific, JGBs made gains at the long end and ACGBs also followed yesterday’s shift in USTs, rallying ahead of the weekend’s Aussie election.

Japan inflation above 2% for the first time since 2008 and strongest for three decades
Japan’s inflation reached a momentous benchmark in April, with the headline and BoJ forecast measures of core inflation (excluding fresh foods) exceeding the 2% target for the first time since then consumption tax was hiked in 2014. Indeed, headline and core inflation jumped 1.3ppts to 2.5%Y/Y and 2.1%Y/Y respectively, with the former the highest since 1991 (when excluding the impact of consumption tax hikes). The increase principally reflected the fading impact of past government policy initiatives as well as the cost-push price pressures felt globally. For example, mobile phone charges (up 21.6ppt to -22.5%Y/Y) added 0.8ppt to headline inflation in April, while food inflation rose 0.6ppt to 4.0%Y/Y, the highest in seven years. But while energy inflation moderated slightly on the back of lower gasoline prices, at 19.1%Y/Y it still accounted for more than 50% of total inflation. So, when excluding food and energy, core inflation on an internationally comparable basis stood at just 0.1%Y/Y, merely the highest since February 2021 and still well below the BoJ’s 2% target and equivalent rates in other major economies.

UK retail sales post surprise rise as consumers hit the booze while confidence hits series low
Defying downbeat expectations, retail sales in the UK bucked their downtrend in April, rising for the first month in three and by 1.4%M/M to reverse the revised drop of 1.2%M/M (previously -1.4%M/M) in March. That, however, left sales down 0.3%3M/3M and a hefty 6.1% below the peak in April last year. Within the detail, the growth in April was led by food store sales, which rose 2.8%M/M. According to the ONS, this was largely due to higher spending on alcohol and tobacco in supermarkets, as consumers seemingly sought to drown their sorrows after seeing their astronomical new household energy bills. In contrast, non-food store sales dropped 0.6%M/M, weighed in part by furniture and other durable items. But non-store sales (i.e. largely online) were stronger, up 3.7%M/M on higher clothes sales. And auto fuel sales rebounded 1.4%M/M after plunging 4.8%M/M the prior month in response to record petrol prices.

Looking ahead, the downtrend in overall sales seems highly likely to reassert itself in May. With the household energy price cap up more than 50% last month and RPI inflation above 11%Y/Y, according to the GfK’s latest survey, consumer confidence dropped for a sixth successive month in May to reach the lowest level on the 48-year series. Within the detail, the economic outlook for the coming twelve months was judged to have deteriorated to the worst since the first wave of Covid in spring 2020 as were perceptions of the climate for making major purchases.

Euro area consumer confidence to remain extremely subdued, French retail sales drop, while German PPI inflation jumps to new series high
Like in the UK, consumer confidence in the euro area has fallen sharply over recent months. And with inflation at a euro-era high, wage growth still subdued and uncertainty about the global economic outlook elevated, today’s flash Commission survey indicator is unlikely to have improved significantly from April’s two-year low (-22.0). Against this backdrop, the Bank of France retail survey today suggested that sales fell for the first month in three in April by 0.8%M/M, reflecting steep declines in new car (-6.9%M/M) and furniture sales (-7.5%M/M). This was countered to some extent by food sales, up 1.9%M/M.

In terms of inflation, this morning’s German PPI numbers came in ahead of expectations, with producer prices up 2.8%M/M to leave the annual rate up 2.6ppts to 33.5%Y/Y, a new series high. Unsurprisingly, the increase principally reflected energy, with prices up a whopping 87.3%Y/Y due to a surge in prices of natural gas distribution 154.8%Y/Y. But there were also significant price pressures on intermediate goods (26%Y/Y), regarding metals, fertilisers, and prepared feeds for farm animals due to supply constraints associated with war in Ukraine. Separately, Destatis published preliminary figures for German exports to non-EU countries in April, which suggested an increase of 4.1%M/M almost reversing the 5%M/M drop in March. While exports to the US continued to trend higher (19%Y/Y) to be Germany’s largest non-EU trading partner. In contrast, exports to Russia were down 63.1%Y/Y.

Categories : 

Back to research list


This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at  /about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at