By Craig Erlam
UK consumers are reining in spending in the run-up to the festive season and the latest survey from Gfk suggests it’s not just the weather that’s driving it.
Retail sales fell 0.9% in September, far exceeding expectations of a 0.3% decline, as unseasonably warm weather weighed on sales of Autumn clothing.
While that’s not a new phenomenon, weather is often referenced in these reports, it also comes at a time when the cost of living pressures are being felt even though wages are outpacing inflation.
Whether it is higher prices at the pump or supermarket, larger energy bills, or big increases in mortgages and rents, households are feeling the pressure and that’s not just being reflected in sales, but surveys too.
The Gfk consumer confidence survey slipped back to -30 again and cost-of-living pressures were cited as a reason for that.
While there is a view that decelerating inflation – which BoE Governor Bailey indicated will fall sharply in October – could support consumer spending, I’m less convinced after such a long period of falling real wages and continued pressures from higher interest rates.
Oil traders wary
Risk aversion heading into the weekend is pushing oil prices higher amid fears of an escalation in the Middle East.
The potential for the war between Israel and Hamas in Gaza to become more widespread is making traders nervous and adding a significant risk premium to crude oil prices at a time when the market is already extremely tight.
Traders are wary of weekend events triggering a shock price move on the open which likely explains the moves we’re seeing.
Gold is very appealing
Gold’s safe haven status has been questioned on a number of occasions in recent years, but times like this highlight that in times of significant uncertainty, traders look for assets with a track record.
Of course, the circumstances are favourable for gold as US yields are rapidly rising at the same time, reducing Treasuries’ appeal in the short-term.
But the combination of geopolitical and economic uncertainty, both of which could have implications for inflation and interest rates, is increasing gold’s appeal, for now.
ETF excitement boosting bitcoin
Bitcoin has seen a burst in activity over the course of this week, rallying more than 10% from $27,000 to briefly breach $30,000 where it has since been pushed back from.
Bitcoin ETF speculation may have contributed to the rally, although there will undoubtedly be some touting its safe-haven status again which has been shown not to be the case repeatedly in recent years.
Either way, it’s now testing $30,000, a significant break of which could be a bullish signal.
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.
