Retail sales dip in June, oil ends the week higher after volatile sessions

Market Report: Retail sales dip in June, oil ends the week higher after volatile sessions

• UK Retail sales volumes fell 0.1% in June, as fuel, non-food and online volumes dip
• Surprise – proportion of online sales falls to lowest level since onset of lockdowns
• Brent crude is trading at around $104, as fears of a global economic slowdown deepen
• ECB interest rate hike has limited impact on FTSE sentiment
• Growth prospects worsen in China as stocks slide

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown: “At first glance, retail sales in June tell a disappointing story, but it’s important to consider sales volumes were 2.2% above their pre-covid February 2020 levels. Of course, this doesn’t totally negate the downwards trajectory over the past year. Declining sales volumes came from fuel, which fell 4.3% – reflecting the impact of sky-high petrol prices. Non-food stores sales volumes fell by 0.7% over the month because of a 4.7% fall in clothing stores, and household goods stores, like furniture shops, fell 3.7%. Things like a sofa or coffee table are likely going to be rubbed off shopping lists as inflation bites household incomes. Food sales were a shining light in the data, as volumes increased thanks to people flocking to the supermarket during the Queen’s Jubilee.

What’s really interesting in these numbers is that the proportion of retail sales online fell to 25.3% in June, its lowest proportion since March 2020. Non-store sales, which are mostly made up by online retail, saw volumes fall by 3.7%. Compared to before the pandemic, the picture is brighter, but it does suggest a high proportion of heightened online demand during lockdowns is dropping away.

Brent crude has finished the week on high note, following a volatile few days. While there had been some respite from the constant climb of wholesale prices, things are now looking reminiscent of more difficult days. The spike comes as both supply and demand anxieties weigh on sentiment. There are real concerns about weakening US gasoline demand alongside the simmering risk of a global economic slowdown. Despite suggestions that talks were going well, President Biden has failed to convince Arab leaders this week to pump more oil. At the same time, demand in the US looks to be tempering, despite the peak summer driving season.

The ECB’s decision to increase interest rates for the first time since 2011 has had very little impact on the FTSE’s sentiment. There’s likely relief that the region is making moves to tackle runaway inflation, but the reality is the speed and scope of these hikes hasn’t triggered any alarms.

Broader concerns are coming from China, where there is a stronger sense of potential economic upset. Tech and healthcare stocks have come under pressure as the country mulls over the idea of a sharp downturn. Concerns stem from renewed Covid-19 outbreaks, and the idea that an ongoing property crisis would hurt China’s growth prospects. The country is also watching for the US’ next interest rate decision very carefully, as rising rates there may well accelerate capital outflows in the country.”