UK Retail Sales up but Sterling doesn’t benefit

UK retail sales came out in line with forecasts, and satisfied investors yesterday and the second positive figure on the trot. It helped that the previous month's 0.5% gain was upgraded to 0.7% and that the 1.1% annual rise was ahead of the 0.7% the market had been expecting. The figures did not do a great deal for Sterling as it is marginally higher this morning against the US and Canadian dollars but is more or less unchanged against the Euro, the antipodean dollars, the South African rand and the Japanese yen.

European data was restricted to the consumer price index inflation yesterday which was precisely in line with the 1.9% everyone had been looking for and had no bearing on the markets.

On the bright side for the Euro the Euro-finance ministers meeting in Brussels has reached two agreements. A German source said leaders will amend the Lisbon treaty "to create a permanent stability mechanism that would allow governments to safeguard the euro in the event of a crisis" which would come into force in mid-2013.

Secondly, according to Luxembourg Prime Minister Jean-Claude Juncker, "there will be no enlargement" of the €440 billion European Financial Stability Facility (EFSF). President of the EU, Herman Van Rompuy, let it be known that the EU would do "whatever is required" to protect the Euro, presumably as long as it doesn't involve topping up the EFSF.

It seems that the feeling from the meeting is guardedly optimistic even if we do not yet know what is going to happen. After three days on the retreat the Euro moved tentatively higher against the US Dollar on Thursday and even strengthened marginally against Sterling on the financial foreign exchange market.

In the States housing starts, building permits and initial jobless claims were all fairly close to the predicted levels. The Philadelphia Fed's manufacturing survey was stronger than expected, up by two points at 24.3, but it did nothing for the Dollar.

Today has started badly for Britain with the Nationwide's consumer confidence index down by seven points to 45. More influential has been the Bank of England's half-yearly Financial Stability Report which revealed that the Bank is not wildly optimistic that Britain's financial system is equipped to withstand non-UK developments such as Eurozone debt issues. There was not obviously anything in the report that applies uniquely to Britain but the tone of the document made investors edgy about Sterling first thing.