By Craig Erlam
Another mixed day of trade in stock markets on Friday as UK consumers become increasingly less pessimistic, but spend less and global manufacturing slumps further.
UK spending slips in March
Economic data on the UK consumer has been a mixed bag Friday morning, but a deeper dive into the figures suggest there’s a little more cause for optimism than the headline numbers suggest.
The most obvious reason for this is that an abundance of rainfall weighed on retail sales last month, as is often the case, depressing the number in a manner you wouldn’t expect to be repeated, as we move through spring and into the summer (I say that hopefully from London).
The GfK consumer confidence survey, while still deeply negative, rebounded more than expected this month continuing the trend of improving sentiment since the Autumn. The economy avoiding recession and being in a better position now than anyone expected, naturally helps.
What’s more, the survey highlights two things. Firstly, UK consumers are a pessimistic bunch and secondly, their spending doesn’t necessarily reflect this.
That said, the squeeze on household finances remains severe and despite wage growth remaining strong, inflation remains much higher which will continue to weigh on spending.
Can services continue to perform strongly?
Strong services and weak manufacturing activity remained the overwhelming trend in the PMI surveys Friday morning and that is evident from Europe to Japan and Australia.
Global trade is suffering, but the services sector remains incredibly resilient for now. The question is whether the darkening global outlook will catch up to services or whether the sector – which in most of these countries accounts for the largest part of their economy – can power a soft landing and eventually a strong recovery.
That looks overly optimistic at this stage, but it may complicate the jobs of policymakers that will be concerned about the implications for inflation and interest rates and if the latter rise further and stay high, it will eventually catch up with the economy and spending overall.
Tighter credit conditions on the back of last month’s mini-banking crisis will also complicate things over the remainder of the year and likely weigh on services activity.
Was OPEC+ right to cut production?
Oil prices are slipping further at the end of the week and looking increasingly likely to close the post-OPEC+ gap.
The gap a few weeks ago came after the cartel announced a surprise output cut over the weekend triggering a gap open last Monday. The price has since fallen back on the back of weaker industrial activity and Friday’s manufacturing PMIs have further compounded that pressure.
It would appear that, as we saw in October, OPEC+ pre-emptive action may have been taken on accurate assumptions on the economy and demand and will not propel the price back above $100
That’s not to say the price at the time wasn’t a motivation for a proactive move, rather than waiting for the data to warrant it, but we may now be seeing evidence in the price that markets agree with its assessment, with it now back in the pre-announcement range.
Brent came very close to closing the gap earlier in Friday’s session and may still do so soon enough.
No mood to give up on gold
Gold remains choppy at the end of the week, slipping around 1% on Friday and back below $2,000.
Uncertainty over the path of interest rates, which should become much clearer over the next month or two, is driving the indecision we’re seeing in gold, at the moment.
Higher yields in recent weeks have stalled the rally toward record highs, but traders are clearly in no mood to give up on the yellow metal. As things stand, dips are being bought and it will be interesting to see if we see the same on this occasion as well. Big support remains around $1,940-1,960.
Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA
Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
