At the other end of the spectrum, however, both Sports Direct and M&S warned of an impact on their business from the ongoing uncertainty. The sports goods retailer said It expected the political uncertainty and economic weakness to continue to weigh on consumer confidence.
And, it said: “When combined with the structural difficulties for UK retailers, including high street footfall, and our exposure to the weakness of the pound against the US dollar (as announced on 24 June 2016), these factors make the current outlook for FY17 somewhat uncertain and therefore hard to predict.”
There is, however a second reason for markets to be a bit more bullish, a reason that partly stems from the gloomy outlook expressed by Sports Direct and one that has been exacerbated by the ongoing turmoil in the listed property sector – the growing expectation that the Bank of England is once more going to step in to save the day.
According to Ben Brettell, senior economist at Hargreaves Lansdown overnight index swaps are currently implying a 78% of a cut in UK rates next week.
Using the same measure he said, the market is pricing in a 86% chance of a cut by August, with a 27% chance that rates will by 0% by then.
“Initially August had looked more likely, but with economic data deteriorating and markets still nervous, it now looks probable the MPC will adjudge that immediate action is warranted,” Brettell said.
JP Morgan’s Nick Gartside, agrees that a fair bit of the market buoyancy can be ascribed to expectations that BoE governor Mark Carney will announce a rate cut next week.
“He [Carney] has telegraphed that by year end rates will be at 0%, there could be more quantitative easing and he has removed the countercyclical buffer,” he said, pointing out, however, that much of this has been priced into markets now.
By signalling to markets that it is prepared to step in once more, the BoE has done what central banks have become required to do and, as a result, markets appear again to be placated. The problem is that they have little room in which to manoeuvre and the margin for error continues to shrink.
