The deepening cost of living crisis sees consumers reining in spending, a trend which is unlikely to change as inflation is expected to keep rising. GBP/USD trades at a 3-week low, while the FTSE trades above 7500.
· US stocks are on track to book a fifth week of gains
· Gold is set to fall over 2% snapping a 4-week winning run
· Silver is set to fall 6% across the week as recession fears hurt the industrial demand outlook
European stocks eeked out a positive close yesterday. The FTSE rose 0.35% after finding support from resource stocks as commodities pushed higher. Meanwhile, the DAX closed 0.7% higher despite eurozone inflation hitting a fresh record high of 8.9% YoY in July.
Instead, the German index was supported by the announcement from Chancellor Olaf Schultze of a temporary cut to sales taxes on natural gas from 19% to 7%, which will help ease the burden on struggling households and businesses, particularly in light of the new gas levy coming into effect from October.
Stocks on Wall Street also managed to secure a positive close, albeit a very modest gain, as initial jobless claims unexpectedly fell and the housing market showed more signs of cooling. Still, US stocks are on track to book the fifth straight week of gains as investors price in the prospect of a less hawkish 50 basis point rate hike at the September meeting. However, there is a good chance that Federal Reserve Chair Jerome Powell will push back against the prospect of a ‘pivot’ at the Jackson Hole Symposium next week.
UK retail sales
UK economic data has been coming in thick and fast this week, painting an increasingly gloomy picture of the state of the UK economy. The jobs market is starting to show signs of weakness, inflation hit double digits, and real wages fell by the most of record. Heading into Friday, GBP/USD trades over 1.6% lower this week at a 3-week low sub 1.20.
Retail sales are expected to fall 3.3% MoM in July after falling -5.8% in June. A continued decline in retail sales is hardly surprising given the health of the UK economy. With the cost of living crisis deepening, UK customers are trying to rein in spending, which is reflected in weaker sales. With inflation set to rise to 13% in the coming months, and let’s not forget the October energy price cap, retail sales are unlikely to start improving dramatically any time soon.
Gold
After four straight weeks of gains, Gold is set to fall over 2% across the week. The stronger USD and the prospect of the Fed continuing to hike rates until inflation falls substantially lower is hurting demand for the precious metal. No high-impacting US data will be released today, so sentiment will likely be in the driving seat.
Silver has underperformed Gold, trading down some 6% this week. Silver is facing significant headwinds. Growing global recession fears are weakening industrial demand for silver at the same time that the stronger USD is also dragging on the price.
Next week’s central bank symposium could be the catalyst for further losses in both metals.
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