Must read: FTSE 100, UK retail sales, Royal Mail, Nationwide

With the FTSE 100 index on track to end the week in positive territory, our head of investment runs through today's big corporate and economic news.

GLOBAL MARKETS

European markets are trading higher with oil & gas and basic resources leading the charge. The FTSE 100 is in the green, with Legal & General Group (LSE:LGEN) at the top of the index following its trading update. 

Indices in China closed lower ,while the Nikkei ended the session just below the flatline after Japan’s core inflation rate hit a 40-year high. It followed a negative session stateside which saw the tech-heavy Nasdaq underperform on the back of some hawkish Fed talk. 

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UK RETAIL SALES AND CONSUMER CONFIDENCE

UK October retail sales fell by 6.1% year-on-year, slightly better than analysts were expecting for a fall of 6.5%. Month-on-month there was a bigger than expected pick up of 0.6% versus forecasts for 0.3% and swinging from a slide of 1.5% in September, which saw retail sales negatively impacted by the bank holiday for the state funeral of Queen Elizabeth II. Retail sales picked up across all main sectors with the exception of food stores which saw sales volumes drop by 1% in October.

Auto fuel sales jumped by 3.3%, contributing to the better-than-expected retail sales figures, while shopping online and in stores both improved.

Compared to February 2020, before the pandemic, total retail sales are up 14.2% in value terms, but volumes are still 0.6% with the disparity reflecting the inflationary environment, which means that more pounds are being spent on fewer goods overall.

Taking a step back, however, the downtrend continues with sales volumes falling by 2.4% in the three months to October quarter-on-quarter, representing the lowest three-month growth rate since March 2021 when the UK economy was in the midst of lockdowns and covid restrictions.

In other data, November’s UK GfK consumer confidence reading hit -44 versus a reading of -47 in the previous month. Although the reading picked up slightly, it is still languishing near record lows as the cost-of-living crisis, squeezed household budgets and the recessionary environment weigh on sentiment. The figure slumped to an all-time low in September of -49 during the chaos of the mini-budget, but it has managed to enjoy a slight improvement over the last two months, with the restoration of at least some political confidence following the appointment of the new Conservative government and a more fiscally sound economic path.

ROYAL MAIL/INTERNATIONAL DISTRIBUTION SERVICES

The Communication Workers Union (CWU) which represents over 115,000 postal workers said further strike action has been announced across the key festive period as the dispute between Royal Mail and its staff escalates further. Additional walkout days have been announced for 9, 11, 14, 15, 23 and 24 December in the critical run up to Christmas, including Christmas Eve. This is on top of the existing four strike days already announced in November and December including around the all-important Black Friday, Cyber Monday weekend of retailer discounts. 

Yesterday, Royal Mail/International Distributions Services (LSE:IDS)asked the government if it could reduce its service from six days to five to protect its ‘long-term sustainability’ after reporting a disappointing loss in the first half, swinging from a profit in the same period last year.

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Only earlier this month, the union cancelled two strike days and said it wants to take more proportionate action so clearly tensions are ramping up again. Plus only yesterday, International Distribution Services said talks would cease if further strike action goes ahead, implying workers are taking a more aggressive approach, perhaps after their intensive talks failed to progress.

Royal Mail and its workers appear to be in a stalemate over pay and conditions, with workers frustrated with the cost-of-living crisis as wages fail to keep up with inflation. Meanwhile, the postal service has been battling a series of headwinds aside from industrial action including the structural long-term decline in letter volumes, stiff competition in parcel deliveries and low margins as cost inflation bites. To offset this, IDS announced 10,000 job cuts last month and put up the price of its stamps.

However, that wasn’t enough to land Royal Mail in the black with eight days of strike action already costing the business £100 million. The additional walkout days with cause extra chaos and financial pain for the business, potentially leading to an even bigger full-year loss than anticipated.

Investors have had a rough ride with IDS, which is down over 54% year-to-date and down 40% over the past five years.

NATIONWIDE BUILDING SOCIETY

Nationwide Building Society (LSE:NBS) reported six-month statutory profit up 13% to £969 million year-on-year. However, credit impairment charges increased by £108 million as the macroeconomic pressures weigh on its customers.

The combination of rising interest rates and a slowing economy is creating a push and pull for Nationwide, which is enjoying higher interest margins, offset to some extent by increasing bad loans amid rising defaults. 

The chaos of the mini-budget sent borrowing costs including mortgage rates soaring, creating an additional burden for households grappling with the cost-of-living pressures. Nationwide itself has also been facing cost pressures of its own, with the inflationary backdrop adding £1 billion to its total costs.