European stock markets showed mixed results on Tuesday as the latest data revealed that UK shop price rises have returned to normal levels. This report, provided by the British Retail Consortium (BRC) and research firm NielsenIQ, indicated a modest increase in prices.
Shop Prices Stabilise
In May, UK shop prices rose at an annual rate of 0.6%, down slightly from 0.8% in April. The figures also highlighted a continued decline in food inflation, which fell for the thirteenth consecutive month to 3.2%.
"This was helped by slowing food inflation, with fresh food inflation falling to its lowest level since November 2021," noted Helen Dickinson, chief executive of the BRC. She also pointed out that while fresh food inflation is decreasing, ambient food inflation remains high, particularly for sugary products, due to elevated global sugar prices. Additionally, non-food retailers have been cutting furniture prices to stimulate demand, and football fans have found deals on TVs and audio-visual equipment ahead of this summer's Euros.
Market Performance
London's benchmark index, the FTSE 100 (^FTSE), was 0.1% lower in early trading. Germany's DAX (^GDAXI) saw a modest rise of 0.2%, while the CAC 40 (^FCHI) in Paris dipped 0.2%. The pan-European STOXX 600 (^STOXX) remained flat.
On the other side of the Atlantic, Wall Street was poised for a positive start with S&P 500 futures (ES=F), Dow futures (YM=F), and Nasdaq futures (NQ=F) all showing gains.
Currency and Market Outlook
The pound showed little movement against the dollar (GBPUSD=X), up just 0.05% at 1.2775. Market sentiment remains cautious amid ongoing political and economic factors.
Guy Lawson-Johns, an equity analyst at Hargreaves Lansdown, commented, "Last week's election announcement is causing some short-term volatility in the markets, but longer-term investors can usually take this as background noise."
In the US, despite a robust Memorial Day weekend for travel, the stock market may face a more pronounced summer slowdown. "Inflation concerns and an early presidential debate could weigh on a rally that has pushed the S&P 500 near record highs," Lawson-Johns added. He also noted that with the S&P 500 trading at a premium compared to historical norms and few catalysts for further gains, the typically slow summer season could be more turbulent than usual.
Summary and Trader's Outlook
While European markets exhibit mixed performance and UK shop prices stabilise, traders should remain vigilant. Key areas to monitor include the ongoing inflation trends, both in the UK and US, political developments, and consumer demand shifts. The summer season may bring increased volatility, especially given the high valuations in the US stock market. Traders should be prepared for potential fluctuations and consider strategic adjustments to navigate the evolving market landscape effectively.
