Monthly Returns

Mixed Picture for UK Retail Sales

Jack Turner, Research Analyst

This week we look at UK retail sales and three pieces of key data published last week. We flag three news headlines due this week and provide a 7IM portfolio update.

Mixed Picture for UK Retail Sales

UK retail sales fell 0.3% year-on-year for the first time in four and half years in October 2017, although the month-on-month number was up by 0.3%. The Office for National Statistics said that the underlying trend points to growth. The negative number was blamed on the recent mild weather, which has led to lower sales of winter clothing, inflation remaining at 3%, and the particularly strong sales growth seen in October 2017.


NEWS

UK UPDATE
The three month average unemployment rate held steady at 4.3% in September in line with consensus. Meanwhile the year-on-year growth in average weekly wages, including bonuses, increased to 2.6% in the September from 2.4% in August. The data suggested that the quality of jobs gains had deteriorated as a fall in full-time employees was countered by an increase in part-time and self employment. Nothing from the data will encourage a further rate hike in 2018. However, in the near term wages are likely to increase marginally as the public sector pay cap is lifted and the National Living Wage increases in the upcoming Budget.

EU UPDATE
A fall in industrial production in September was not enough to bring down Q3 GDP growth in the Eurozone. Industrial production in the Eurozone fell 0.6% month-to-month in September, in line with the consensus. The year-over-year rate was pushed down to 3.3% from an upwardly revised 3.9% in August. The slow down in industrial production was not enough to impact Q3 GDP which increased 0.6% quarter-on-quarter in Q3, in line with the consensus and initial estimate. The year-over-year rate rose to 2.5% from 2.3% in Q2, also in line with the consensus.

US UPDATE
The October inflation figure in the US increased by 0.1% month-on-month, in line with expectations. The headline figure was depressed by a 2.4% drop in gasoline prices which will more than likely reverse next month due to the recent surge in oil prices. A big contributor to the October inflation figure was the 0.7% increase in used auto prices, the first increase since December and likely caused by supply shortages resulting from recent hurricanes. Overall the current health of the US economy means the Federal Reserve is likely to hike rates, as planned, in December.


PORTFOLIO ACTIONS
The team made some changes to the Portfolios on Monday, cutting the overweight to European equity to fund an increase in UK equity. The team has had a large overweight to European equity for the majority of the year however we now believe the time is right to sell down part of that position. In the event of a broad market correction, the FTSE 100 should outperform European Equity, due to the large, global and defensive nature of the companies in the index. Also with Brexit negotiations entering a critical time, UK Equity should provide us with a boost if Sterling falls –the Index has often benefited during times of Sterling weakness. We also trimmed our gold position by 1% across the portfolios. We still like gold for its hedging properties to Geo-political risk however the threat of rising real yields next year has softened our conviction.


THREE ANNOUNCEMENTS DUE THIS WEEK
22 Nov –US Durable Goods Orders // 23 Nov –UK Q3 GDP Growth 2nd Est. // 23 Nov –EU Purchasing Manager Indices

SOURCES: BLOOMBERG; EUROSTATS; MARKIT; 7IM.

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