Market Report – Retail Sales Better than Expected, FTSE Cements Best Week in Months

* UK retail sales rose 0.7% in June, beating expectations.

* FTSE 100 expected to cement its best week in months.

* Despite positivity elsewhere, GfK Consumer Confidence indicator fell in July.

* Sharp tech losses lead US and European markets down.

* Brent crude sees a small boost on China demand pledges.

* Third night of attacks against Black Sea ports heaps further pressure on wheat prices.

Market Report – Retail Sales Better than Expected, FTSE Cements Best Week in Months

By Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown

UK retail sales rose 0.7% in June, compared to expectations of a 0.2% increase – reflecting the third consecutive month of growth. In particular, the sun was shining on non-store sales, with summer sales from the good weather boosting performance. Consumers were also digging into their food shopping, with grocery sales reverting back to positive levels. The especially telling development is the increase in household goods – these are firmly in the non-essential camp and suggest a level of economic resilience.

This positive set of data has helped boost the FTSE 100, which is on track to cement its best week in months. Broader optimism about the resilience of demand has added a jolt of optimism through the market, despite gathering storm clouds.

One such cloud is a drop in what is already fragile consumer confidence. The GfK Consumer Confidence indicator has fallen to -30 from -24. UK consumers have begun to deplete their pent up savings, which have been more resilient than European and US counterparts. As inflation persists and interest rate pain climbs closer to the surface for households, we could be at the inflection point where discretionary spending starts to take a more pronounced back seat.

Sharp losses from Netflix and Tesla have sent the S&P 500 and Nasdaq Composite down 0.68% and 2.05% respectively. US futures are steady, but the markets across the pond remain highly sensitive – a dynamic made worse by sky-high valuations created by a year-to-date rally amid AI excitement. European markets are also set for a downbeat open as this weaker sentiment crosses their borders, and imminent economic data and corporate earnings reports have kicked up further tension.

Brent crude’s expected to end the week slightly higher, at around $79, with the price being buoyed by pledges from top importer China that consumption will be restored and expanded, according to the country’s top economic planner. The reality of this pledge is up for debate given the challenging read of the latest economic indicators.

Russia has taken part in a third night of attacks against Black Sea ports, and has warned all ships will be categorised as hostile. Hopes that Russia’s abandoning of the export deal with Ukraine might be fleeting, as they have been in the past, are quickly evaporating. This adds a significant layer of pressure on the price of wheat, with concerns from suppliers and consumers alike now swelling. The possibility of a full-blown food crisis for poor nations can’t be ruled out, and further volatility on the commodity markets is likely going to take a long while to abate.