UK Consumer Confidence Up but Fragile Amid Tariff and Middle East Concerns

Economic

Middle East Situation

Summary:

Analysts say households are remaining cautious under ‘dark shadow of inflation’

Confidence among UK consumers has improved but remains fragile in the face of expected petrol price rises amid escalating conflict in the Middle East, according to a leading index.

The latest snapshot from the data company GfK says sentiment improved by two points in June but remained in negative territory at -18, well below the -12 of a year ago. A reading above zero indicates optimism; below indicates pessimism.

The last time the headline index, which is closely watched by the government and the Bank of England, was positive was in January 2016, when it was at 4. It has had double-digit negative readings since September 2021 when Britain was in the grip of Covid-19.

Last month, sentiment hit its lowest level since November 2023 as a combination of domestic tax increases, rising bills and worries over Donald Trump’s trade wars weighed on minds.

Consumers became more optimistic about the overall economy this month, with scores up three points when judging how the past year went, and up by five points when looking at the next 12 months. However, both measures were firmly stuck in negative territory, at -43 and -28 respectively.

Assessments of personal financial situations were unchanged, with the score for the past 12 months at -7 and the measure looking ahead was in positive territory, at 2.

Neil Bellamy, consumer insights director at GfK, said: “Consumers have been resolute in their views on their wallets, with June’s personal financial situation scores (past and future) unchanged from May. Yet confidence is still fragile because the dark shadow of inflation is a day-to-day challenge for so many of us.”

The cost of filling up a car started creeping up this week when crude oil prices rose sharply after Israel’s attack on Iran. A litre of petrol now costs 132.8p while diesel is at 138.9p, according to the AA motoring group.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “Looking ahead, consumer confidence will likely be squeezed by gradually easing wage growth while inflation remains at about 3.5% for the rest of the year, and unemployment will likely creep up.

“The prospect of tax increases in the October budget could also weigh on households. But real income should continue eking out gains given that average earnings rose 5.5% year-over-year in March. We also expect unemployment to rise only modestly to a peak of 4.9%.”

Gen Z is driving improvements in confidence, with younger generations the most optimistic about the future, a separate survey from the British Retail Consortium showed on Thursday. Consumer sentiment improved for the second month in a row to the highest level since Christmas but remained in negative territory.

“This rising optimism may also reflect the increase in minimum wage from April, with many younger people expected to have seen a significant uplift in their pay packet,” said Helen Dickinson, the BRC’s chief executive. “Expectations of future spending – both in retail and more generally – rose slightly, with more spending on groceries planned over the coming months.”

Source: Theguardian

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Adam

Commodity

Middle East Situation

Stock markets ticked higher on Friday while oil skirted close to its biggest daily drop since April after President Donald Trump pushed back a decision on U.S. military involvement in the Israel-Iran conflict.

Rising risks from the Middle East have loomed large on the world's top indexes again this week.

Europe's main bourses all rose between 0.5%-1% after similar gains across Asia (.MIAPJ0000PUS), opens new tab, although it was touch and go whether it would be enough to prevent a second straight weekly loss for MSCI's main world index. (.MIWD00000PUS)

Israel bombed targets in Iran, and Iran fired missiles at Israel overnight as the week-old war continued although Friday's markets moves, which also included a modest drop in the dollar, showed an element of relief.

That was largely pinned on Thursday's statement from the White House that Trump will decide in the next two weeks - rather than right away - whether the U.S. will get involved in the war.

European foreign ministers were to meet their Iranian counterpart in Geneva on Friday, seeking a path back to diplomacy over its contested nuclear programme.

The relief the U.S. wasn't charging into the conflict sent oil prices down as low as $76.10 per barrel, although they were last at just over $77 and still up 4% for the week and 20% for the month.

"Brent crude is down 2.5% today in the clearest sign that fears over an imminent escalation in the Israel/Iran conflict have eased," MUFG strategist Derek Halpenny said.

Gold, another traditional safe-haven play for traders, was also lower on the day although Nasdaq , S&P 500 , and Dow futures were all in the red after U.S. markets had been closed on Thursday.

Asian shares (.MIAPJ0000PUS) , had gained 0.5% overnight thanks to a 1.2% jump in Hong Kong's Hang Seng and as newly elected President Lee Jae Myung's stimulus plans saw South Korea's Kospi (.KS11), top 3,000 points for the first time since early 2022.

China's central bank held its benchmark lending rates steady as widely expected in Beijing, while data from Japan showed core inflation there hit a two-year high in May, keeping pressure on the Bank of Japan to resume interest rate hikes.

That in turn lifted the yen and pushed down the export-heavy Nikkei (.N225), in Tokyo.

OIL RETREATS

The dollar was ending an otherwise positive week lower on the day, with the euro up 0.3% against the U.S. currency at $1.1527 and the pound 0.2% higher at $1.3494. /FRX

The U.S. bond market, which was also closed on Thursday, resumed trading with the key 10-year Treasury bond yield flat at 4.39%, while German 10-year yields , which serve as Europe's borrowing benchmark rate, fell 2.5 basis points to 2.49%.

Gold prices eased 0.5% to $3,354 an ounce, but were set for a weekly loss of 2.3%.

But the main commodity market focus remained oil. Brent crude futures were last down $1.60, or around 2.2%, at $77.28 a barrel in London although they were still on track to end the week 4% higher.

PVM analyst John Evans said the big market risk of the Middle East troubles was "unintended action that escalates the conflict and touches upon oil infrastructure".

"The world has more than adequate supply for 2025, but not if the nightmare scenario of 20 million (barrels per day) being blocked in the seas of Arabia, however briefly that might be," he said.

source :reuters

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Glendon

Forex

Economic

Retail sales in Canada rose 0.3% to $70.1 billion in April, driven largely by gains in the motor vehicle and parts subsector, according to data released Friday by Statistics Canada. Sales increased in six of nine subsectors, while retail e-commerce climbed 3.6%.

The rebound also translated into a 0.5% gain in volume terms, suggesting stronger real activity. Still, retailers reported mounting pressure from Canada/U.S. trade tensions, with 36% citing issues such as higher prices, supply chain disruptions, and weaker demand.

Motor vehicle and parts dealers led the monthly increase, up 1.9%, as both new and used car sales posted gains exceeding 2%. By contrast, sales at gasoline stations fell 2.7%, although volume-adjusted figures rose slightly by 0.4%.Core retail sales—which exclude autos and gasoline—edged up just 0.1%, pointing to subdued discretionary spending. The biggest drag came from clothing and accessory stores, down 2.2%, offsetting modest gains in sporting goods, electronics, and grocery categories.

Regionally, five of ten provinces posted growth. British Columbia led with a 1.7% increase, bolstered by strong auto sales in the Vancouver area. Ontario rose 0.2% overall, though Toronto saw a stronger 2.7% gain. New Brunswick (NYSE:BC) recorded the steepest drop at 3.1%, weighed down by auto-related weakness.

Despite April’s improvement, preliminary data for May suggest a potential pullback. Early estimates point to a 1.1% decline in retail sales, based on 53.8% of survey responses. While subject to revision, the data signal a soft start to the summer for Canada’s retail sector.

Source: Investing

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Warren Takunda

Economic

The prime minister of New Zealand stressed the mutual benefits of trade with China in a meeting with Chinese leader Xi Jinping on Friday, while acknowledging their disagreements on geopolitical issues.

Christopher Luxon, on his first visit to China since becoming prime minister in late 2023, flew to Beijing after two days of meetings with officials and business leaders in Shanghai, China’s commercial center.

He wants to maintain healthy trade ties despite differences over regional and global security issues and China’s growing divide with the United States. China is an important market for New Zealand food, dairy and other exports.

Xi told Luxon that the two countries should seek common ground while setting aside their differences, Chinese state broadcaster CCTV said. He called for deepening trade and investment cooperation and exploring cooperation in areas such as climate.

Luxon raised the necessity of reducing tensions in the Indo-Pacific region, according to a news release from his office. He also brought up the importance of what he called “the key role” that China can play in helping to resolve global challenges such as the war in Ukraine,

“In a complex world, open dialogue is more important than ever,” Luxon said in a post about the meeting on X.

His exchange with Xi came one day after revelations that New Zealand had suspended millions of dollars in aid to the Cook Islands over concerns about the latter’s deepening ties with China.

China accounts for more than 20% of New Zealand’s exports of goods and services.

“Our trade and economic links are complementary and contribute to prosperity in both countries,” Luxon was quoted as saying in the news release.

New Zealand announced this week a limited easing of visa requirements for Chinese visitors, a major source of tourism revenue.

Luxon is headed to Europe next, where he will have meetings in Brussels and the Netherlands, his office said.

He will discuss trade, security and geopolitical issues with European Union leaders. In the Netherlands, he is an invited guest to next week’s NATO summit in The Hague.

Source: AP

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Adam

Stocks

London stocks had extended gains by midday on Friday despite uninspiring UK data releases, as worries about possible US involvement in the Israel-Iran conflict abated.

The FTSE 100 was up 0.5% at 8,832.77.

Neil Wilson, UK investor strategist at Saxo Markets, said: "Some temporary relief but not enough for anyone to hang their hats on properly as the situation remains way too unpredictable. Trump has opened a two-week window for a diplomatic solution to the conflict between Israel and Iran - a move that has diminished some of the geopolitical risk premia affecting global markets heading into the weekend. European ministers are due to meet Iran's foreign minister in Geneva today to hash something out.

"Oil retreated along with gold and stocks rose a touch early on Friday as hopes for some kind of de-escalation permeated markets. Let’s be clear though - stocks hadn’t moved all that much in the first place given we’re talking about an extreme tail risk of WW3 erupting that has a more-than-zero probability.

"Base case has started to shift in the direction of direct US involvement, which opens up a pandora's box of mess, but markets seem to be clinging to expectation that it all remains contained like it has in the past. The meeting today is material and could shift the needle - stay sharp."

On the UK macroeconomic front, figures from the Office for National Statistics showed the government borrowed more than expected in May.

Public sector net borrowing came in at £17.7bn. This was up £700m on May last year and £600m higher than the £17.1bn forecast by the Office for Budget Responsibility.

Separate figures from the ONS showed that retail sales fell more than expected in May in what turned out to be a "dismal" month for supermarkets.

Retail sales fell 2.7% following a 1.3% increase in April, which was revised up from a 1.2% jump. Economists were expecting a much more modest 0.7% decline.

The data showed that sales volumes at food stores fell 5% in May following 4.7% growth the month before. This was the largest monthly drop since May 2021.

The ONS said the fall was due mainly to reduced sales volumes in supermarkets, with retailers pointing to inflation and customer cutbacks, alongside reduced sales of alcohol and tobacco products.

ONS senior statistician Hannah Finselbach said: "Retail sales fell sharply in May with their largest monthly fall since the end of 2023.

"This was mainly due to a dismal month for food retailers, especially supermarkets, following strong sales in April. Feedback suggested reduced purchases for alcohol and tobacco with customers choosing to make cutbacks.

"The falls were consistent across all sectors with clothing and household goods stores reporting slow trading due to reduced footfall. There was also decreased demand for DIY items as consumers took advantage of the good weather over the previous few months.

"Looking at the wider picture, retail sales are still up across the latest three-months as a whole."

There wasn’t much happening on the corporate front, but shares in housebuilder Berkeley tumbled as it posted a 5% fall in annual earnings but said it was confident about the future against a backdrop of falling interest rates and government plans to ramp up supply using brownfield sites.

Full-year pre-tax profit came in at £529m, while new house sales rose to 4,047 from 3,521 in 2024.

The company also announced that finance chief Richard Stern would become CEO, succeeding Rob Perrins, who will take on the role of executive chair as chairman Michael Dobson steps down in September after the group's annual general meeting.

source :sharecast

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Michelle

Economic

Forex

The Philadelphia Federal Reserve Manufacturing Index, a key indicator of general business conditions in Philadelphia, has remained steady, according to recently released data. The actual number for the index stood at -4.0, an identical figure to the previous month’s reading.

Interestingly, the actual figure of -4.0 also defied the forecasted number, which had been pegged at -1.7. The prediction suggested a slight improvement in the business conditions, however, the actual data showed that the conditions remained unchanged in the Philadelphia Federal Reserve district.

The Philadelphia Fed Manufacturing Index is compiled from a survey of about 250 manufacturers in the Philadelphia Federal Reserve district. A level above zero on the index indicates improving conditions, while a reading below zero indicates worsening conditions. The steady figure of -4.0, therefore, suggests that the business conditions in the region have not improved since the last reading.

The index carries significant importance as it not only provides insights into the health of the manufacturing sector but also has implications for the USD. A higher than expected reading is typically taken as positive or bullish for the USD, while a lower than expected reading is considered negative or bearish.

In this case, the actual figure of -4.0, which is lower than the forecasted -1.7, could be perceived as bearish for the USD. However, it is essential to note that the figure is not a further decline, but a continuation of the previous month’s conditions.

The steady reading of the Philadelphia Fed Manufacturing Index suggests that manufacturers in the region are still facing challenging business conditions. The data underscores the need for strategies to stimulate the manufacturing sector and improve the overall business climate in the Philadelphia Federal Reserve district.

Source: Investing

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Adam

Stocks

U.S. stock index futures slipped lower Friday, ending the week on a negative note as investors continue to monitor the ongoing conflict between Israel and Iran that has now entered its second week.

At 05:25 ET (09:25 GMT), Dow Jones Futures fell 80 points, or 0.2%, S&P 500 Futures dropped 14 points, or 0.2%, and Nasdaq 100 Futures slipped 54 points, or 0.3%.

Wall Street was closed for the Juneteenth holiday on Thursday, and investors have been wary of placing any big bets this week. The S&P 500 is up marginally so far this week with a gain of 0.1%. The 30-stock Dow has lost 0.1%, while the Nasdaq has advanced about 1%.

Trump to decide on Iran strike in two weeks - White House

President Donald Trump will decide on direct U.S. involvement in the Israel-Iran conflict within the next two weeks, the White House said on Thursday.

Trump was seen still holding out for the possibility of nuclear talks with Tehran, even as hostilities between Israel and Iran showed little signs of cooling. While the president has publicly mused about directly attacking Iran, he has also touted the possibility of nuclear talks with the Islamic republic.

The Israel-Iran conflict, which entered its eighth day on Friday, has kept Wall Street largely risk-off over the past week, as markets feared a wider conflict in the Middle East.

A spike in oil prices, resulting from the conflict, also sparked concerns over energy-driven inflation.

Philly Fed manufacturing survey due

On the economic front, investors will monitor the Philadelphia Fed’s manufacturing survey, followed by the Conference Board’s leading economic indicators reading for May.

The Federal Reserve left interest rates unchanged as expected on Wednesday, with Chair Jerome Powell mostly reiterating the Fed’s data-driven approach to any future interest rates, while also flagging persistent inflation risks from Trump’s tariff agenda.

Powell still forecast at least two interest rate cuts in 2025, but slightly trimmed the Fed’s forecast for rate cuts in 2026.

Trump added to his criticism of Federal Reserve Chair Jerome Powell after the decision, labeling Powell as “destructive” in a Truth Social post on Thursday, adding that the central bank chair is costing the United States “hundreds of billions of dollars” by leaving rates steady.

Markets were also assessing a wave of central bank decisions over the course of the week, including announcements from the Bank of England, Norges Bank, and Swiss National Bank. A murky economic outlook due to Trump’s often erratic trade agenda played heavily into policymakers’ thoughts.

Apple heavily linked to India

In the corporate sector, Apple (NASDAQ:AAPL) is scouting for Indian companies to manufacture the equipment required to build the company’s flagship iPhone devices in the country, Business Standard reported on Thursday.

Apple had earlier flagged plans to drastically increase its iPhone production in India, especially as its manufacturing hubs in China face increased U.S. trade tariffs. While the company still intends to maintain a manufacturing base in China, it has signaled intent to produce all of its U.S.-sold iPhones in India.

Brent slumps on Trump delay

Brent crude futures slumped on Friday following the White House’s comments, although the contract is on course to rise for a third consecutive week.

At 05:25 ET, Brent crude futures -- the price barometer for much of the world’s oil market -- had fallen by 2.2% to $77.15 per barrel. The U.S. West Texas Intermediate crude futures for August edged higher to $73.89 per barrel.

Oil prices spiked by nearly 3% on Thursday, although trading volumes were relatively light due to the U.S. holiday. Oil has broadly gained since the beginning of the Israel-Iran fighting, with traders fretting that the conflict could spill into the wider Middle East region and possibly disrupt crucial supply flows -- particularly in the Strait of Hormuz, which runs along Iran’s southern coast.