FTSE 100 set to fall from highs as investors suffer vertigo even as UK retail sales leap

he FTSE 100 Index was today set to slip back further from this week’s highs but will remain at stratospheric levels amid increasing signs of a long-term, booming economy and low interest rates.

Shares in Asia edged higher this morning but the FTSE 100 was expected to inch down about seven points to 7150 – still up around 20 points from its start point on Monday morning.

It has been a week in which the Federal Reserve has managed to convince the markets both that it is aware of the risk of the US economy overheating and that any increase in interest rates, while likely to start sooner than expected, will be mild enough not to kill the boom.

The bond markets have this week been among those signalling that investors are relatively happy with the Fed’s cautious stance. Investors have been rushing into higher risk corporate bonds rather than safe haven Treasuries, so much so that the difference in interest rates – known as yields – between the two collapsed to its lowest level in more than a decade, the FT reported.

Without getting too tangled up in the detail, that means investors are no longer so concerned about the threat of inflation.

However, if markets have taught us anything in recent months, it is that sentiment changes on a sixpence when equities are at such dizzying highs at a time of so much uncertainty as economies emerge from the worst of the Covid pandemic’s impact.

Today will bring retail sales data in the UK to give economists and market watchers more of a feel for how Britain’s consumer-led economy is faring.

The week has featured a fairly upbeat set of data on other areas of the UK’s recovery, and retail sales are expected to follow suit. Having collapsed 8.2% in January, expect today’s May number to continue the pattern of strong bouncebacks – possibly even higher than the previous month’s 9.2% rise.

British Retail Consortium numbers last week showed extremely strong recoveries for its members.