Walid Koudmani, chief market analyst at financial brokerage XTB, said:
Concerns continued after sterling slumped to a 37-year low against the dollar, with GBP/USD down around 1% and hitting a low of $1.135 before recovering slightly.
While a stronger dollar has certainly played a role in the case of the Fed taking major action to curb inflation, it doesn’t help that today’s retail sales report further underscores the precarious situation the UK economy finds itself in. The Bank of England faces a difficult task as it must balance managing inflation and supporting the currency without further negatively affecting the broader economy.
UK retail sales fell 1.6% last month, more than triple what economists expected and the biggest drop since December 2021. This is just the latest bad news for the pound.
John Hardy, head of currency strategy at Saxo Bank, told Reuters:
Everything that is happening is putting pressure on the pound, with the UK running a huge external deficit, exacerbated by the risks posed by the new prime minister’s policies.
New Prime Minister Liz Truss last week announced a two-year cap on soaring energy bills as part of measures that could cost the UK more than £100bn.
Sterling falls to 37-year low
Sterling fell to a fresh 37-year low against the dollar as a sharp drop in UK retail sales fueled recession fears.
Sterling was down more than 1% at $1.1350 and 0.5% lower against the euro at 1.1407 euros.
Another factor is a stronger dollar – which has been strengthening against a number of major currencies as the Federal Reserve has hiked interest rates sharply, providing investors with better returns. The U.S. dollar index, which measures the greenback against a basket of currencies, was up 0.5% this morning.
The Fed is expected to raise rates by a further 75 basis points at its meeting next Wednesday, after the Bank of England raised rates by 50 basis points a day earlier.
Germany puts Rosneft subsidiary under state control
Germany has placed the German subsidiary of Russian oil giant Rosneft under state control, placing three refineries under trusteeship ahead of a partial European embargo on Rosneft at the end of this year, By Philip Altman from Berlin.
The federal network regulator will become the interim trust manager of Rosneft Germany and its refineries in Schwert, near Berlin, Karlsruhe and Warburg in Bavaria, Germany’s Ministry of Economic Affairs announced on Friday.
Rosneft Germany is the country’s largest single oil processing company, accounting for about 12% of its crude oil processing capacity.
German Chancellor Olaf Schultz will announce on Friday further details of a package to support the Schwert refinery and “ensure the supply of oil through alternative routes,” the announcement said.
The refinery on the Polish border, which is crucial for supplying gasoline to the Berlin-Brandenburg region, has so far relied on the Soviet-era Druzhba (“Friendship”) pipeline, which transported Russian oil from Ukraine Ship to Europe.
European stocks fall on recession fears
U.K. and European stock markets are falling after a sharp drop in U.K. retail sales and the World Bank’s warning of a global recession.
London’s FTSE 100 was down 31 points, or 0.4%, at 7,251 in early trade, while Germany’s Dax lost 1.4%, France’s CAC lost 1% and Italy’s FTSE MiB lost 1.6%.
Retail sales in the UK fell more than expected, down 1.6% last month, another sign that the economy is slipping into recession as the cost of living crisis – high inflation and falling real wages – takes hold. Sales in fashion stores, supermarkets and department stores fell – alcohol and tobacco were one of the few categories to see growth.
Fashion retailers including Asos and Primark owner Associated British Foods, as well as online grocer Ocado, have warned in recent days about their profits.
“Shoppers are simply buying less to offset price increases,” he said Lisa Hooker, PwC Consumer Markets Industry Leader. She explained:
Excluding the impact of inflation, grocery store sales fell below pre-pandemic levels for the first time, suggesting less waste from shoppers who were forced to be more careful about what they put in their trolleys.
Other categories, such as fashion, are also below pre-pandemic levels, although they recovered earlier in the summer as consumers scrambled to buy new clothing for the workplace and as celebrations and events were postponed due to the pandemic.
Retailers will be looking forward to next week’s small-budget results as Christmas looms in key prime areas. The confirmation of an energy price cap and the potential for tax cuts could spur wobbly consumer spending, but businesses will also seek help to cushion their own soaring utility costs. And that doesn’t include input cost inflation and wage hikes that they already have to contend with.
In the longer term, High Street will also be looking for signs of business rate reform, with index-linking likely to offset any revaluation gains and increase costs from next year.
Olivia Cross, an assistant economist at Capital Economics, said the sharp drop in retail sales in the UK indicated that “the economy is already in recession”.
Retail sales are likely to continue to struggle as the cost of living crisis intensifies in the coming months. But nonetheless, the Bank of England will have to hike rates aggressively.
The drop in retail sales in August outpaced an upwardly revised 0.4% monthly gain in July. Sales fell in every major category, and the ONS reported that high prices were prompting households to rein in spending. That was in line with consumer confidence falling to its lowest level on record in August. For example, fuel sales fell 1.7% despite a sharp 6.2% drop in fuel prices in August.
With CPI inflation yet to peak, it will continue to squeeze real incomes and weigh on consumer spending in the coming months. Nonetheless, the potentially large fiscal expansion from the government’s energy price guarantee will provide substantial support for household and consumer spending going forward.
We now expect the recession to be smaller and shorter than before, which is one reason why we expect the Bank of England to need to raise rates further than our expected peak of 4.0% (previously 3.0%, consensus 2.5%).
The World Bank also warned that unless supply disruptions and labor market pressures subside, global core inflation, excluding energy, is likely to remain around 5 percent next year, nearly double the five-year average before the pandemic.
To reduce inflation, the central bank may need to raise 2 percentage points on top of the 2 percentage points it has already seen, it said. But an increase of this magnitude, combined with pressure in financial markets, would slow global GDP growth to 0.5% in 2023, or a contraction of 0.4% per capita, which would meet the technical definition of a global recession.
Malpass urged policymakers to shift the focus from reducing consumption to increasing production, including efforts to generate additional investment and increase productivity.
The central bank said previous recessions showed the risks of allowing inflation to remain high for a long time amid weak growth, noting that the 1982 recession sparked more than 40 debt crises and caused many developing economies to lose a decade of growth. increase.
World Bank Vice President Ayhan Kose said the recent tightening of monetary and fiscal policy would help contain inflation, but as it happened in several countries at the same time, it could exacerbate slowing global growth.
The report suggested the central bank could fight inflation without triggering a global recession by clearly communicating its policy decisions, and called for a credible medium-term fiscal plan and more targeted relief for vulnerable households.
Brief: UK retail sales plummet; World Bank warns of global recession
Good morning and welcome to our rolling coverage of business, the world economy and financial markets.
UK retail sales fell 1.6% in August from July, well below expectations.
Economists had expected a drop of 0.5%. The sharp drop came after a 0.4% increase in July.
The ONS, which published the data, said all major industries (food stores, non-food stores, online retail and fuel) fell this month; the last time this happened in July 2021, when all legal restrictions against Covid were lifted, People flocked to bars and restaurants.
Sales at supermarkets and other grocery stores fell 0.8% in August and were 1.4% below their pre-pandemic level in February 2020. However, alcohol and tobacco sales rose 6.3% as people sought to ease the cost of living during the crisis. Petrol and diesel sales fell 1.7% despite lower prices.
Sales at department stores fell 2.7%, while sales at home improvement stores fell 1.1%, mainly due to lower sales at furniture and lighting stores. Feedback from retailers suggests consumers are cutting back due to rising prices and affordability concerns.
At clothing stores, sales fell 0.6% in August and were 5.7% below February 2020 levels.
The share of online retail sales fell to 25.7% from 26.3% in July; but was still well above pre-coronavirus levels, when it was 19.8%.
The world appears to be heading for a global recession as central banks are forced to raise interest rates to combat high inflation, the World Bank has warned.
The world’s three largest economies – the United States, China and the euro zone – have been slowing sharply, and even “a modest hit to the global economy next year could tip it into recession,” the bank said in a new study.
The world economy is now in the midst of its deepest slowdown since a post-recession recovery since 1970, and consumer confidence has fallen more than it did on the eve of previous global recessions, the report said.
World Bank President David Malpass expressed concern that these trends will continue, with devastating consequences for emerging market and developing economies, saying:
Global growth is slowing sharply and is likely to slow further as more countries slide into recession.
10am BST: Eurozone August inflation, final estimate (forecast: 9.1%)
10am BST: Italian inflation in August, final estimate (forecast: 8.4%)
3pm BST: US Michigan Consumer Confidence for August