Diamond in the rough

It’s been a slow start to the week, but it should build in intensity as we approach Friday and the release of UK’s Retail Sales data. In many ways, no news is good news and the economic recovery looks intact, as sunny weather this weekend—at least in London—and continued vaccination efforts keep markets pretty optimistic about the outlook. Of course, much of that optimism is based on expectations of consumers spending accumulated Covid savings when we are back to business-as-usual.    

In the US, where Congress have passed stimulus measures which included direct payments, the prospect of increased spending is clear. However, in the UK that narrative is somewhat less certain despite a Moody’s household savings comparison, which shows a 10% increase in savings versus 2019. Like any aggregate measure, it doesn’t account for distributional affects which might show that wealthier households accounted for a large proportion of those squirreled savings. In the US, Goldman Sachs economist, Jan Hatzius, estimates that two thirds of savings accrued to the wealthiest 40%. Given the aforementioned direct payments in the US, which would have skewed those estimates toward lower earners, in places that didn’t provide direct payments like the UK we could expect the savings distribution to show a greater wealth bias. 

Bottom line: Given that wealthy individuals have on average a lower propensity to spend, as percentage of their income, it’s not clear that these household savings buffers represent future spending. At the very least, we need to account for the many who lost their jobs during the pandemic and deplete savings instead. It makes sense, therefore, to watch the UK Retail Sales number tell the story of saving-to-spending transformation. So, while there are central bankers speaking this week, we think your time may be better spent following consumer spending data instead.


The week ahead


Data released last week showed UK GDP had expanded by 0.4% in February compared with a 2.2% decline in January, despite the nationwide lockdown. Over the weekend, coronavirus cases dropped below 2000 per day, the lowest for almost seven months and despite the easing of restrictions on the 12th April. There’s also positive news for the vaccine programme with second dose rates now close to 10 million, meaning almost 500 thousand vaccinations are being administered in a day. However, the emergence of a new Indian variant has been a cause for concern with some suggesting the country should be added onto the red list for travel into the UK.

  • The Claimant Count Change will be released for March tomorrow, forecast at 24.5K vs 86.6K in February. The Unemployment Rate looks set to remain at 5% from January to February.
  • CPI and Core CPI y/y are forecast to read higher for March at 0.8% and 1.1% vs 0.4% and 0.9% in February.
  • Retail Sales m/m look set to fall in March to 1.5% from 2.1% in February.
  • Manufacturing and Services PMI’s are released on Friday, expected to read 59.0 and 58.6 vs 58.9 and 56.3 previously.



Optimism in the EU is on the rise, as coronavirus vaccination rates begin to pick up with some sources suggesting a catch up to the UK is possible in the coming weeks. Around 27 million people are fully inoculated with over 100 million doses administered across the bloc so far. However, the economy is still lagging behind thanks to this slow start in the vaccination campaign, as well as the re-introduction of lockdown measures. With the European Central Bank set to meet this week pressure is mounting for the pace of bond purchases to be increased as economies across the globe begin to rebound.

  • The European Central Bank will meet this Thursday and publish their Monetary Policy Statement along with Interest Rate decisions.  
  • French flash Manufacturing and Services PMI’s are forecast to fall to 46.6 and 59.0 vs 48.2 and 59.3 previously, potentially due to the four week lockdown.
  • German flash Manufacturing and Services PMI’s are also scheduled for release, expected to read 65.8 and 51.1 vs 66.6 and 51.5 previously.
  • Eurozone flash Manufacturing and Services PMI data will be released Friday, due to read 62.0 and 49.1 vs 62.5 and 49.6 last month.



Last week, both the S&P 500 and the Dow Jones reached all-time highs as consumer spending rose thanks to the $1400 stimulus payments made in Joe Bidens recovery package. Unemployment claims also improved as the country began to fully unlock the economy. Vaccination rates have continued to rise considerably, with a current rate of 59 per 100 people and a total number of doses nearing 200 million. As restrictions begin to ease case numbers are rearing their head once again, however, the hope is that as vaccinations climb hospitalisations will remain low and in turn aid the return to normality.  

  • US Crude Oil inventories are scheduled for release on Wednesday.
  • Unemployment Claims are forecast to rise on the previous week to 635K vs 576K.
  • The flash Manufacturing PMI is predicted to rise slightly to 60.6 vs 59.1 previously.
  • The flash Services PMI also looks set for a marginal increase to 61.6 vs 60.4 previously.


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