Must read: German data, UK car production, SSE, Black Friday

European markets lack direction in the absence of Wall Street, but our head of investment has plenty of news to analyse. 

GLOBAL MARKETS

European markets have opened flat after a quiet session on Thursday because of Thanksgiving. UK housebuilders such as Taylor Wimpey (LSE:TW.) and Persimmon (LSE:PSN) are underperforming after a survey showed that first-time buyers favour renting over buying.

Germany’s GkK consumer confidence figure rose to -40.2 heading to December versus -41.9 in November but worse than market expectations for -39.6 as negative sentiment eases slightly thanks to the government’s energy support.

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UK car production rose by 7.4% in October to 69,524 units year-on-year, swinging back to growth versus September’s slide. However, production remains below pre-Covid levels as problems with the global supply chain and the global chip shortage take their toll.

SSE

Shares in SSE (LSE:SSE) are trading higher after the energy company announced plans to sell a 25% minority stake in SSEN Transmission, its power transmission network, to the Ontario teachers’ pension plan board. This is expected to unlock £1.465 billion for further growth in the business when the sale kicks off early next year. The deal could help offset some of the pressures from the increased windfall energy tax from 25% to 35%. SSEN Transmission reported adjusted operating profit up 72% to £380.0 million in the year to 31st March with gross assets of £4.72 billion.

Shares in SSE are trading higher extending gains with now a 15% share price gain over the last month.

BLACK FRIDAY

Black Friday may struggle to keep businesses in the black, given that it is expected to be considerably less exuberant than previous years.

Pressures from the cost-of-living crisis and rising mortgage rates are squeezing household budgets, leaving less left over for retail spending this festive season. More than half of consumers are expected to cut back on Christmas shopping this year, with less extravagant spending on food, drinks and gifts. Many families are opting for Secret Santa with a strict budget limit to minimise the amount of pounds each person needs to spend. Individuals and families across Britain are facing a perfect storm this year when it comes to making ends meet with the soaring cost of food, energy, and rent.

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While the final quarter is still likely to see its annual seasonal boost in retail spending around the holidays, this increase is expected to be more tempered than usual as the looming recession in the UK bites. Retail sales have already been slowing, resulting in a number of businesses falling into administration including Made.com Group (LSE:MADE) and Joules Group (LSE:JOUL) in the UK.

Meanwhile, businesses will be desperately fighting it out for the slimmed down collective pot of potential consumer spending. It is likely that there will be more aggressive discounts than normal to entice shoppers to spend their precious pounds. However, businesses have also been facing a big increase in costs from energy to wages to materials. This troublesome combination of increased costs and higher discounts will put pressure on margins, making it increasingly tough for retailers to remain profitable. They may also struggle with a hangover of too much inventory if sales fall short of expectations, potentially resulting in even more discounts after Christmas into the new year and even tighter margins.

In an attempt to find bargains, consumers may look to carry out as much of their festive shopping as possible around the Black Friday/Cyber Monday period. That might result in increased shopping in November as shoppers bring forward their December spending to the earlier cheaper month.