U.K. stocks struggled for direction in early trade on Thursday, as traders stayed on the sidelines ahead of a report on retail sales that could influence the case for a Bank of England interest rate rise in August.
What are markets doing?
The FTSE 100 index UKX, +0.09% slipped 0.1% to 7,668.43, after closing at its highest level since July 10 on Wednesday. That gain came as the pound tumbled, after a disappointing reading on inflation raised doubt that the BOE will lift interest rates next month.
What is driving the market?
Focus is on the retail sales report for June and what it could mean for the path of interest rates. Economists expect sales to have gone up 0.3% month-on-month, pulling back from growth of 1.3% in May.
“Those forecasts tend to be way off base, however, so it’ll be interesting to see whether or not the World Cup and the sunny weather helped things out a bit,” said Connor Campbell, financial analyst at Spreadex, in a note.
The England soccer team surprised most fans by reaching the semifinal in the World Cup, which may have boosted spending on going out and on merchandise as people watched games.
The figures will be closely watched, especially after June inflation numbers out Wednesday missed forecasts, coming in at 2.4% versus the 2.6% expected. The disappointing reading raised questions as to whether the BOE will hike rates at its Aug. 2 meeting, as has been widely expected. However, the market is still pricing in a rate rise.
The retail report is due out at 9:30 a.m. London time, or 4:30 a.m. Eastern Time.
What are analysts saying?
“With the market pricing in around a 72% chance of the BOE hiking rates, a surprise to the downside in retail sales could see that percentage fall further,” said Jasper Lawler, head of research at London Capital Group.
“In this scenario, the pound could head back towards support at $1.30. A weaker pound would be expected to boost the FTSE as we saw in the previous session,” Lawler said in a note.