US Retail Sales in play ahead of inflation-dominated week

• Energy declines bring FTSE 100 underperformance.

• Indices on the front foot despite Iranian attack on Israel.

• US Retail Sales in play ahead of inflation-dominated week.

European markets have taken on a surprisingly upbeat tone in early trade, with Iran’s weekend attack on Israel serving to do little to dent risk sentiment. Notably, the weakness we have seen for energy markets have brought particular underperformance for the FTSE 100, with Shell and BP suffering heavy losses after WTI lost $1 in early trade. Much of this market confidence appears to be associated with the claims that Iran provided plenty of notice of their impending attack, raising the likeliness that it was more about saving face rather than a declaration of war. Nonetheless, with the flow of commodities largely undisturbed by the weekend’s activities, calls for a sharp spike in energy prices have been cast aside for now.

While traders may have expected a hugely volatile start to the day, the remarkably resilient open highlights the strong possibility that Friday’s declines were driven by those informed of the impending attack. While markets remain conscious of the potential escalation in the event of a meaningful Israeli response, it is now the job of Western politicians to use their influence in a bid to avoid any further expansion of this conflict.

Instead, markets have started the week on the front-foot, with US markets expected to follow their mainland counterparts higher at the open. In a week that looks set to be dominated by inflation data out of the UK, Canada, and New Zealand, today instead sees US retail sales data reported. The resilience of the US consumer has been one reason for the struggles in bringing inflation back down to target, with companies managing to charge ever higher prices. The expectation of another strong monthly gain highlights the protracted efforts that the Fed faces if it is to see inflation reach their target this year.