Market snapshot: reaction to retail sales data

Focus is on shopping behaviour on both sides of the Atlantic. Here's what our head of markets thinks.

Retail sales numbers on both sides of the pond have added further colour to the current status of the economic recovery.

In the US, a strong retail sales number surprised investors, as the resilience of the consumer was in evidence, despite the effects of the Delta variant and Hurricane Ida. The consumer contributes some 70% to the US economy and the strength of the reading triggered a rise in bond yields, leading in turn to some selling of rate sensitive stocks. 

However, the pressure on the labour market remains, with jobless claims numbers rising slightly more than expected. This will place additional focus on the Federal Reserve meeting next week, when the latest thinking on tapering will become apparent following a busy few days of economic releases. 

In the meantime markets are maintaining strong levels of progress, with the Dow Jones adding 13.5%, the S&P500 19.1% and the Nasdaq 17.8% in the year to date.

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UK retail sales fell by 0.9% in August, following on from the 2.8% dip in July. Contributing to the decline was a fall in food store sales as more consumers chose to eat out, while in the background ongoing disruptions to supply chains, inflationary pressure and the end of the furlough scheme are likely to remain headwinds in the short term. Even so, when compared to pre-pandemic levels, sales were ahead by 4.6%.

At the same time, the expected easing of international travel restrictions and higher projected long-term traffic forecasts have been positive for the beleaguered airline and related stocks.

Seemingly robust consumer confidence and healthy levels of savings could contribute further to both retail sales and international travel. Such progress in the UK economy has also allowed the more domestically focused FTSE250 to remain the star of the show within UK indices, now having risen by 15.7% in the year to date.

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Meanwhile, the FTSE100 has also risen in 2021 by a more sedate but perfectly respectable 9.6%, latterly facing the headwinds of weakness in commodity prices, throwing further doubt on the strength of the global recovery.

However, the index has continued to attract the attention of international investors on valuation grounds, while the current average dividend yield of 3.5% has also caught the eye of income-seekers.