Analysts at Bank of America Merrill Lynch say the timing and outcome of the US trade negotiations with China and the EU are the key focus for markets for the rest of the year.

They write in a note:

Since trade tensions started, we have been optimistic, arguing that no country should want a trade war, but we are now concerned that persistent trade tensions are keeping global growth weak. In this context, a recovery outside the US needs trade deals that will put trade tensions behind, relatively soon.

The risk is that another truce between the US and China, while the US and the EU start discussions on trade in autos and agriculture, will keep uncertainty high, delaying the recovery of the global economy. Our baseline still assumes trade deals, but it makes a difference if deals take place in 1Q, or later in the year.

And of course, the details of any trade deals will also be important to determine whether we are back in a free trade regime, or a permanent shift toward trade protection has taken place.

Time for a quick summary of the corporate news doing the rounds today:

• RBS said Brexit uncertainty has “gone on far too long”, as the bailed out bank reported a doubling of profits in 2018 and fresh dividend payouts that will hand the government £1bn

• Premier Foods has abandoned plans to sell-off Ambrosia, its custard and rice pudding brand, blaming the current business climate for a lack of acceptable offers

• PepsiCo has warned that earnings will fall this year for a number of reasons, including a stronger dollar, a higher tax bill, and an increase in investment

• Patisserie Valerie’s administrators announced the £2.5m sale of its Baker & Spice bread cafes to the Department of Coffee and Social Affairs chain

• Just Eat said it had reached a milestone of 500m orders in the UK, in a week when activist investor Cat Rock Capital Management pushed for the takeaway firm to merge with a rival

The FTSE 100 is currently at a four-month high, up 0.4% or 26 points at 7,223.

Conor Campbell, analyst at spread-betting firm Spreadex, reflects on the latest developments in the US/China trade talks:

A significant shift in sentiment occurred on Friday morning following the latest trade talks update.

After a few days of discussion in Beijing, President Xi Jinping has said that the talks will continue in Washington next week, both sides still chasing that elusive deal before the ceasefire ceases at the start of March.

This faint whiff of progress was enough to cause the markets to reverse the losses that had come after the double-hit of Donald Trump’s ‘national emergency’ chat and China’s inflation-slowdown.

With the market cheering the apparent US-China progress, it is going to be interesting to see how much the trade war fears have weighed on the latest round of American data, including the industrial production and consumer sentiment figures.

Here is our full story on those better-than-expected UK retail sales:

UK consumers are still in “happy-go-lucky” mood according to Samuel Tombs at Pantheon Macroeconomics.

January’s jump in retail sales shows that most households have maintained a happy-go-lucky mentality, despite the fraught political situation. While consumers’ confidence is down, this reflects rather fuzzy expectations that Brexit might be costly eventually.

Right now, households’ real incomes are being supported by low inflation, a decade-high rate of nominal wage growth and solid employment gains. Low confidence will prompt consumers to hold back from buying cars, booking holidays and moving home, but the high street will be protected.

Thomas Pugh, economist at Capital Economics, agrees that the outlook for retail sales in the coming weeks and months is heavily dependent on the Brexit outcome:

In contrast to the Brexit pessimism, which seems to be weighing on other sectors, the rise in retail sales volumes in January implies that consumers are still willing to spend.

Of course, unless a Brexit deal is signed soon, sales could weaken over the rest of Q1.

However, if a no deal Brexit is avoided, consumers should be in a good position to ramp up spending in the second half of the year.

James Smith, an economist at ING bank, warns that the positive retail sales figures mask a tough backdrop for the UK high street:

Brexit uncertainty is likely to keep a lid on spending over the next few months. Despite an improvement in real wage growth, consumer confidence remains at the lowest level since 2013, led by concerns about both the economic climate and personal finances.

There is a risk that, as the Brexit deadline draws nearer, nervousness about the impact of ‘no deal’ will creep into the consumer mindset. At the very least, shoppers may opt against bigger ticket purchases in the short-term, instead choosing to maintain savings levels.

At 4.2%, the annual rate of growth in retail sales is the strongest in more than three years (since December 2016).

The stronger-than-expected retail sales have helped the pound a tad, which is now roughly flat against the dollar at $1.2809.

However, Moneycorp’s Lee McDarby says investor minds are elsewhere:

Despite Brexit uncertainty and a stuttering economy, consumers have begun 2019 in a buoyant mood. These better than expected results may have been helped by the surprise drop in inflation, putting more money in consumer’s pockets.

After a week of poor economic data, these figures are unlikely to have much impact on the pound. Moreover, in today’s currency market the strength of Sterling is largely being determined by markets’ expectation of a deal or no deal.

Rhian Murphy, head of retail sales at the ONS, said price discounts helped to convince shoppers to splash out on clothing in January:

Retail sales returned to growth, with increases across most sectors.

Clothing stores saw strong sales, luring consumers with price reductions with food sales also growing after a slight dip over Christmas.

It’s almost time for UK retail sales data, which will give the latest insight into consumer willingness to spend as Brexit nears.

City economists are expecting the Office for National Statistics to say sales rose 0.2% in January, following a 0.9% fall in December.

The figures are out at 9.30am.

Neil Wilson, chief market analyst at Markets.com, puts the RBS numbers into context:

RBS delivered a stellar set of numbers and a forecast-beating dividend payout to investors, but Brexit and other factors mean it will fall short on its cost cutting target.

On the whole this was just what investors have been waiting for. Profits rose to £1.6bn, ahead of the consensus for around £1.4bn and more than double the £752m a year ago.

Shares could well continue their 2019 ascent today, although the prospect of the government selling down its stake will act as a residual weight on the stock performance. The real question is just how quickly the Treasury decides to sell down its stake.

Philip Hammond may well feel that a selling the roughly £18bn the government owns would be a nice little bonus for his Brexit war chest. At £2.41 on the close yesterday the shares are worth half what the government paid for them, but needs must some times.

RBS shares are currently down 0.4% at 240.6p.