Major UK benchmarks closed June largely flat. At month end, market sentiment was hindered by Q1 economic growth figures from ONS, showing UK GDP shrank by 1.6%, compared to an initial estimate of a 1.5% decline. The fall can be attributed to the closure of shops and restaurants during lockdown.
The recent jump in infections and their potential economic impact, have started to weigh on market sentiment, as do inflationary-related concerns. Narrowly achieving its fifth consecutive monthly gain, the FTSE 100 recorded a modest increase of 0.21% in June, to close on 7,037.47. The mid-cap FTSE 250 index closed June on 22,376.02, a monthly loss of 1.36%. The Junior AIM index closed on 1,248.31.
The Euro Stoxx gained 0.61% in the month. The latest economic data out of the euro area was largely upbeat, although some analysts expressed concern at month end, regarding the potential for sharp CPI increases across the region over the next few months as economies reopen. In Japan, the Nikkei 225 lost 0.24% in June, to end Q2 on 28,791.53.
In the US, the Dow Jones ended June little changed, as traders rotated back into growth and technology stocks. The Dow ended June down 0.08%, while the NASDAQ recorded a gain of over 5%. Wall Street continued to pick up pace after positive US jobs data.
On the foreign exchanges, sterling closed the month at $1.38 against the US dollar. The euro closed at €1.16 against sterling and at $1.18 against the US dollar.
Gold is currently trading at around $1,769 a troy ounce, a loss of 6.88% on the month. The precious metal is trading lower after the Fed brought forward its forecasts for a potential interest rate increase, with the stronger dollar also adding pressure. The oil price rose at month end, after US crude stockpiles fell for a sixth consecutive week. Brent Crude is currently trading at around $74 per barrel, a gain of 7.84% on the month.
Government borrowing chasm narrows
The latest public sector finance statistics confirmed that government borrowing is declining more rapidly than the Office for Budget Responsibility (OBR) had predicted in its March Budget forecast.
Figures released by ONS revealed UK public sector net borrowing (the gap between the country’s overall income and expenditure) totalled £24.3bn in May. Although this was the second-highest amount borrowed in any May since records began in 1993, it was £19.4bn lower than the amount borrowed in the same month last year and below the consensus forecast in a Reuters poll of economists.
It was also the second consecutive monthly undershoot of the OBR’s most recent forecast, with year-to-date borrowing now £14.1bn under the spending watchdog’s prediction. While the OBR did say that over a third of this was due to timing differences for EU divorce payments, lower spending and moderately stronger tax receipts also contributed to the outperformance of borrowing relative to forecast.
Additionally, the ONS data revealed that total public sector debt now stands at nearly £2.2trn, which equates to 99.2% of annual economic output. Responding to the borrowing figures, Chancellor Rishi Sunak again stressed his desire to get “the public finances on a sustainable footing” over the medium term.
Sales dip as shoppers eat out
Official statistics revealed an unexpected decline in retail sales during May, as shoppers reduced their consumption at food stores, although more recent survey data suggests consumer demand remains strong.
According to ONS data, sales volumes fell by 1.4% between April and May as the reopening of hospitality venues encouraged people to spend in restaurants rather than buying food from shops. As a result, the volume of sales at supermarkets fell significantly. In contrast, sales at non-food shops rose during May, with demand for outdoor furniture particularly strong.
Evidence from the latest Distributive Trades Survey published by the Confederation of British Industry (CBI), also suggests sales volumes strengthened last month. The survey’s retail sales balance was +25 in June, up from +18 in May and the highest figure since August 2018. In addition, retailers said they expect sales in July to remain good for the time of year.
Commenting on the findings, CBI Principal Economist Ben Jones said, “After a generally gloomy 2021 so far, the sun finally shone for retailers in June. The success of the vaccination programme is feeding through to stronger consumer confidence which, along with the re-opening of hospitality, is encouraging shoppers back onto the streets.”
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