Must read: stocks, oil, Border Force, Inditex

With the Christmas break just hours away, our head of investment rounds up the action on global financial markets.

GLOBAL MARKETS 

European markets have opened broadly flat as markets slow down ahead of the weekend’s festivities. Defensive consumer staples stock Reckitt Benckiser Group (LSE:RKT)t is outperforming, trading near the top of the FTSE 100. 

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Wall Street ended the session lower with the Dow Jones down by more than 1% and nearly 350 points amid below-average volumes. Investors remain cautious, weighing up the prospect of rising interest rates against this week’s better-than-expected corporate earnings. To end the week, investors are focusing on a key US inflation measure due at lunchtime, the PCE price index which could provide clues about the Fed’s next move. 

In Asia, Japan’s inflation rate hit the highest level since 1991 reaching 3.8% in November, with core inflation at 3.7%, a 1981 high and ahead of the Bank of Japan’s 2% target. It was a sea of red across Asian markets with the Kospi and the Nikkei both down more than 1%.

OIL PRICES 

Oil prices are trading higher after Russia’s Deputy Prime Minister Alexander Novak indicated the country could cut oil production in response to the EU’s punitive price cap on Russian oil. Russia could cut its oil output by 5-7% or 500,000-700,000 barrels per day, with the potential constraints to supply pushing WTI and Brent crude prices into the green. The threat of retaliation from the Kremlin follows the EU’s attempt to sanction Russia’s energy markets, its most important economic engine which has helped fund its invasion of Ukraine. 

Oil prices have been picking up this month, going against a broader downtrend that has been in place since prices surged in February and peaked in March, as tensions escalated between Russia and Ukraine. However, concerns about weakening demand driven by the global economic slowdown have prompted a descending trendline since the highs.

BORDER FORCE 

Border Force workers will go on strike today, adding to the chorus of staff who are frustrated that pay is being eroded by inflation, prompting the summer-turned-winter of discontent. They are also walking out over conditions and pensions. Around 1,000 Border Force workers are staging industrial action from 23-26 December and from 28-31 December, likely to cause significant disruption to international travel during the busy festive period and school holidays. After recent years of subdued international travel because of the pandemic, this Christmas is expected to see the highest passenger volumes since pre-Covid in 2019.  

Shares in Ryanair are under pressure while easyJet (LSE:EZJ) and British Airways’ parent company International Consolidated Airlines Group SA (LSE:IAG) are also trading slightly lower. 2022 was meant to be the comeback year for travel stocks but problems with baggage handling, cancellations, strikes and general disruption have prompted these stocks to slide, on track to end the year sharply lower. EasyJet is down by nearly 45% year-to-date and Wizz Air Holdings (LSE:WIZZ) is down 57%.

INDITEX 

Around 1,000 workers at Zara and other Inditex stores in Spain have called off their latest plans to strike between 23 December and 7 January. The retail giant agreed a deal with the CIG union to pay staff at 44 stores 322 euros more a month after the union earlier rejected an offer to increase salaries by 200 euros a month. The pay uplift will come into effect from January. Inditex shares are trading modestly higher as the threat of further imminent industrial action has been averted. 

Last month, Inditex reported strong nine-month profit and sales growth but said November and December sales had slowed as the macroeconomic headwinds weigh on the consumer. The fashion retailer is known for its competitive pricing and its ability to move nimbly and offer the latest trends to consumers.

However, Inditex is not immune to the deteriorating economic outlook with the threat of recession in the UK, Spain and elsewhere putting pressure on the consumer and dampening sales during the all-important golden quarter for retail. Zara has been trying to attract customers at the higher end who are less sensitive to cost-of-living pressures. It has been branching out into higher priced product ranges including skiwear and lingerie. Shares are down more than 12% year-to-date but have rebounded 17% over the last six months.