Must read: FTSE 100, BP, oil, Nifty 50, UK retail sales

EUROPEAN MARKETS

European equities are on shaky ground with the DAX, FTSE 100, CAC, and FTSE MIB nursing losses ahead of the European Central Bank’s (ECB) rate decision as well as key US jobs data this week.

Sterling hit the highest in more than two months against the US dollar – the pound is now the only G10 currency which is in positive territory year-to-date. Sterling is also near 21-month highs against the euro as the ECB prepares to cut rates by 25 basis points this week, while investors will likely have to wait longer for the Bank of England to follow suit. 

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On the UK blue-chip index, BP (LSE:BP.) and Shell (LSE:SHEL) are among the top losers, with BP down by over 3% after ratings agency S&P Global cut the oil giant’s credit outlook to stable citing concerns over a slower-than-expected debt reduction. 

Weaker oil prices are also punishing the UK oil majors. Brent crude is down by over 1.5%, inching closer to support at $77 a barrel, while WTI crude has slipped below $73, extending losses after hitting a four-month low on Monday.

Brent crude fell below $80 yesterday for the first time since February after sliding over 3% in the session. That’s despite OPEC+ agreeing to extend most of its oil output cuts into 2025 over the weekend. The market sold off in response to the second straight slowdown in US ISM manufacturing activity, dropping from 49.2 in April to 48.7 in May, moving further away from the key 50 boom-bust divide. 

The weak US data, however, helped support the bond market, with the US 10-year yield sinking 11 basis points yesterday fuelled by hopes that the Federal Reserve can begin cutting rates this year. Markets are pricing in around a 60% chance of the first Fed rate cut this September. 

Overnight, India's Nifty 50 fell sharply, sliding by around 5% as early vote counts suggest that India’s Prime Minister Narendra Modi’s Bharatiya Janata party gained a smaller-than-expected lead in the country’s parliamentary elections. 

US futures are pointing to a weaker open across the board after NVIDIA Corp (NASDAQ:NVDA) helped fuel gains for the Nasdaq and the S&P 500 on Monday. The AI stock market darling surged nearly 5% after investors reacted positively to the unveiling of its next generation of AI chips.

UK BRC-KPMG RETAIL SALES MONITOR 

UK retail sales rose by 0.7% last month versus growth of 3.9% last year. Nonetheless, that still represents an improvement from the 4% slide in April. The early bank holiday and an improvement in weather conditions fuelled a modest rebound in retail appetite. 

Online retail has picked up with growth across most categories as the post Covid weakness for e-commerce starts to fade. Spending on DIY, gardening equipment and clothing also improved and there are hopes that a strong summer of sporting events including the Euros and the Olympics will drive shoppers to spend more again. 

With the UK economy having emerged from last year’s short shallow recession, inflation easing and hopes of monetary easing around the corner, there are reasons for consumer confidence to pick up and spending activity to improve. Retailers will also be hoping for positive announcements on the campaign trail as the UK election looms.