Must read: China, UK retail sales, food inflation, Marston's, Ashtead, SSP

It's all eyes on the consumer today as investors digest a double dose of data. Our head of investment rounds up the action.

European markets are trading lower, dragged down by the negative momentum into the close on Wall Street. The FTSE 100 is under pressure, with Mondi (LSE:MNDI) leading the losses, partly on the back of a downgrade from Credit Suisse to underperform from outperform. 

The authorities continue to ease China’s Covid restrictions, with citizens now allowed to enter supermarkets, offices and airports without needing to provide a negative Covid test. The expectation is that Beijing will continue to loosen its restrictions that have kept people in China mostly locked down since the start of the pandemic in 2020, resulting in rare demonstrations from fed-up and angry protesters last week. 

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The Reserve Bank of Australia raised interest rates by 25 basis points to 3.1%, in its eighth consecutive rate hike to the highest level since November 2012. The Aussie dollar is trading higher against the US dollar.

After a sharp rally for Chinese markets on Monday, Asian equities have been mixed, weighing up the loosening of China’s Covid restrictions versus a sell-off on Wall Street last night. The Nasdaq closed lower by nearly 2%, with the Russell 2,000 down 2.8% after better-than-expected November ISM services data added to Friday’s US jobs report beat. Data suggests the US economy remains strong and the Fed may need to do more to tame inflation. It is a classic case of good news is bad news in terms of what the data implies for monetary policy.

UK RETAIL SALES 

UK BRC retail sales rose by 4.1% in November almost quadrupling from October’s figure of 1.2% and hitting the highest level since January. 

Discounts around Black Friday encouraged shoppers to do their Christmas shopping early in November to make the most of the sales. With the cost-of-living crisis and squeezed household budgets, customers are arguably keener than ever for a bargain, while retailers have been aggressively discounting in an attempt to attract a slice of the slimmed down pot of overall consumer spending.

Despite November’s jump, sales are still falling short of inflation with volumes lower versus last year as the macroeconomic pressures from a looming recession and rising prices continue to weigh on demand. As we approach the most important few weeks of the calendar for retail, it looks like it could be a slimmed down festive season this year for many families.

KANTAR UK GROCERY INFLATION 

UK grocery inflation hit 14.6% in the four weeks to 27 November, according to Kantar with milk, butter and dog food prices rising fastest. This was the first fall in grocery inflation for 21 months, dropping 0.1 percentage points versus October. Kantar said shoppers will have to spend an extra £60 in December to buy the same items as last year. The cost of a traditional Christmas dinner is up 9.3% year-on-year to £31 for four people. 

Although this was the first decline in grocery inflation in almost two years, it was only a very modest drop, with food still outpacing broader price increases in the economy. As a result, the increased cost of essential items like groceries mean that inflation is unfairly weighing most heavily on those at the lower end of the income spectrum. We continue to see shoppers who are desperately seeking cheaper prices flood to the German discounters, Aldi and Lidl which are most competitive on pricing. Both businesses enjoyed sales growth above 20% over the 12 weeks thanks to new store openings, as they both steal market share from supermarkets like Morrisons and Waitrose which suffered from sales declines.

MARSTON’S

Marston's (LSE:MARS) reported a full-year pre-tax profit of £27.7 million versus a loss of £101.3 million last year on revenues of £799.6 million versus £401.7 million last year. The pub chain said current trading to the end of November has been positive so far, with the World Cup boosting sales on England match days. 

Marston’s has swung to a full-year profit following the challenges of the pandemic thanks to the return to pub life, particularly over the warm summer months. Meanwhile, revenue has almost doubled year-on-year. It has been managing the pressures from inflation through its pricing strategy and with efficiencies. It also hedged its winter electricity and hedged its gas price until 2025 to alleviate some of the uncertainty from volatile commodity markets. However, it looks like 2023 could be challenging with pressures from a slowing UK economy and squeezed household budgets leaving consumers with less discretionary income to spend on drinks and food at the pub. 

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Shares in Marston’s have had a tough time this year, shedding 50% but the last month has seen price action turn more positive with buyer demand spurring positive price action today.

ASHTEAD

Ashtead Group (LSE:AHT) reported second-quarter adjusted profit before tax of $688 million rising from $542 million a year ago. Half-year revenue rose by 26% with US revenue up 28%. It raised its interim dividend by 20% to 15 cents a share and expects its full-year results to come in ahead of previous guidance. 

The British industrial equipment rental company appears to be handling the challenges of inflation and rising interest rates, given the upgrade to its full-year outlook. This is typically a cyclical business that is subject to the ups and downs of the macroeconomy with the rising risk of recession likely to be a headwind for Ashtead in 2023. 

After a tough first half of the year, since the trough in July, shares have been staging gains. The stock has rallied around 50% off the summer nadir with shares extending gains today.

SSP 

Shares in SSP Group (LSE:SSPG) are trading higher after it reported full-year underlying core profit of £142 million versus a loss of £108.3 million year-on-year. Revenue hit £2.19 billion rising from £834.2 million last year. It is forecasting 2023 core profit of £250-280 million on revenues of £2.9-3 billion. 

The owner of Upper Crust, which struggled during the pandemic when travel ground to a halt, has benefited from the sharp increase in footfall this year at airports and train stations, boosting sales in its stores. It has also strategically increased prices to offset rising costs, which has boosted revenues without denting demand.

SSP is optimistic about further growth to its top and bottom lines next year, despite the growing threat of recession. Investors are cheering this morning’s update with shares trading higher, but the stock is still nursing a year-to-date loss of nearly 15%.