The FTSE 100 was today set to build on yesterday’s strong recovery, holding onto the ground above 7000 points as another turbulent week comes to an end.
Wednesday’s battering was followed by a 1% recovery on Thursday and today the FTSE was set to open up another 12 points at 7027. Not much of a rally, but a consolidation in positive territory nonetheless.
Wall Street last night snapped its three day losing streak with a positive finish which spilled over this morning into Japan, where the Nikkei was up 0.7%. However, Hong Kong and China had modest falls, tempering some of the optimism in Europe.
Key to today’s trading could be economic data on retail sales, which have been recovering steadily since plunging more than 8% in January. April’s figures should come in at a positive 4.5% on the month and a chunky 36.8% gain on last year. The latter figure really should be shrugged off as it compares with the grimmest days of the Covid lockdown in 2020.
CMC Markets analyst Michael Hewson pointed out that the British Retail Consortium survey on the High Street has already shown a decent improvement month-on-month for April, so the official Office for National Statistics data should be similarly rosy.
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If so, it will set the scene nicely for May’s numbers because April only included two weeks of the reopening of non-essential retail.
Also out today will be news on the wider economic recovery in the form of the Purchasing Managers Index survey. These “flash” figures give a snapshot of more recent trading and cover key economies such as the UK, Germany, France and the US.
Expect more positivity in most markets. The UK has already seen a big pickup in demand for goods and services, which should follow through into today’s PMIs for May.
On the continent, there is likely to be something of a lag because lockdowns there came in later than in the UK and many leisure and retail operations continue to be restricted as countries battle the Indian variant of Covid.
That said, May will be better than April as the vaccination programmes have started having an impact on infections and allowed some relaxation of restrictions.
Expect the UK PMI score to hit 62.2 for services and 60.8 for manufacturing on an index where anything above 50 is positive. That follows April’s scores of 61 and 60.9.
The improvement in the UK economy will cheer Chancellor Rishi Sunak as it will bring improved tax revenues, possibly even allowing him to increase his spending on Britain’s battered public services.
The FT reports that borrowing for 2021-22 would fall from the Office for Budget Responsibility’s March forecast of £233.9 billion to as little as £150 billion. That will allow Sunak to deliver what the paper called a “good news” Budget in autumn.
Treasury officials caution against too much optimism, though, given the uncertain outlook for the Covid situation as the Indian variant spreads.
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