Must read: UK retail sales and consumer confidence, SSE, Netflix

There's enough economic data and company news to keep everyone busy today. Our head of investment rounds up the action. 

GLOBAL MARKETS 

After yesterday’s sell-off, European markets have opened higher with SSE (LSE:SSE) at the top of the FTSE 100 index after an upbeat trading update. The UK index has started 2023 with a bang, staging stronger percentage gains year-to-date than it has over the past five years.

Elsewhere in Europe, Germany’s annual producer inflation rate fell to 21.6% in December, a 13-month low, supporting the view that price pressures globally are starting to ease. US futures are pointing to a stronger open after declines on Wall Street yesterday, which sent the Dow into negative territory for the year. 

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After a rally in China overnight, China-sensitive stocks on the FTSE 100 are outperforming including Prudential (LSE:PRU), Glencore (LSE:GLEN) and Rio Tinto Registered Shares (LSE:RIO) ahead of the Chinese New Year. In Japan, its annual inflation rate hit 4% in December, a 32-year high, sparking speculation that the Bank of Japan could still put an end to its ultra-low monetary accommodation despite defying expectations for lift-off this week. 

Gold is on track for is fifth weekly gain, while oil looks set to end its second week higher with both WTI and Brent crude trading in the green.

UK RETAIL SALES 

Retail sales volumes fell by 1% in December, missing analysts’ expectations for a drop of 0.5% and accelerating from a fall of 0.5% in the previous month. While total retail sales were 13.6% higher than pre-Covid in February 2020 in value terms, volumes were 1.7% lower.  

December is typically the all-important month during the Golden Quarter for the retail sector. However, the weight of the cost-of-living crisis has dampened consumer demand amid slimmed down budgets, as individuals and households cut back because of worries about affordability and increased prices. That's hit non-food stores particularly hard.

However, food stores also suffered in December, suggesting consumers planned early for Christmas, carrying out more of their festive spending in November instead. The jump in overall retail sales versus February 2020 was driven by higher prices rather than volumes, which are still languishing below pre-covid levels. There was a change in spending habits in December, with increasing expenditure in physical stores versus online. Consumers headed back to the shops as the pandemic e-commerce boom fades and potentially also because of concerns about delivery issues around the Royal Mail strikes.

UK GfK CONSUMER CONFIDENCE 

UK GfK consumer confidence fell to -45 in January versus -42 in December, sharply missing expectations for a drop to -40 and close to September’s record low -49. 

The weakness was driven by feelings towards the state of consumer personal finances as well the macroeconomic conditions of slowing growth and rising inflation. January is typically a difficult month for consumer finances after the Christmas blow out, but this year is particularly challenging when coupled with the cost-of-living crisis, double-digit inflation and elevated energy bills.

Although the latest UK GDP reading picked up, surpassing expectations, paving the way for the UK to potentially avoid a recession, this has not been reflected in terms of consumer morale with the shaky economic backdrop and ongoing price increases continuing to weigh on sentiment.

SSE

SSE has upgraded its annual earnings forecast and said it is on course to deliver record investment above £2.5 billion this year. The energy supplier is now forecasting 2022/23 adjusted earnings per share of more than 150p versus its previous expectation for at least 120p. SSE is also paying out to shareholders with plans to recommend a full-year dividend of 85.7p per share plus RPI for fiscal 2023 with another 5% increase in 2025 and 2026. Shares have jumped to the top of the FTSE 100 this morning. 

SSE and Centrica (LSE:CNA) are enjoying strong earnings outlooks thanks to elevated energy prices buoyed by the war in Ukraine. However, SSE shares are up only 10% over a one-year period, sharply underperforming the British Gas owner Centrica which has seen its market valuation rise by over a third.

Although SSE has achieved strong returns in gas, renewables have suffered because of unfavourable weather. In November, SSE warned it will be reviewing its renewables investments after the Chancellor Jeremy Hunt announced a 45% windfall tax on electricity generators.  

NETFLIX 

Netflix Inc (NASDAQ:NFLX) added 7.66 million paid subscribers in the fourth quarter, sharply outpacing expectations for 4.5 million. Meanwhile, Co-CEO Reed Hastings announced plans to step down from the role with Greg Peters, chief operating officer taking over the top job alongside Ted Sarandos. Investors shrugged off its Q4 earnings per share (EPS) miss which came in at 12 cents versus forecasts for 45 cents. 

Its Harry & Meghan show helped drive subscriber numbers, becoming Netflix’s second most successful docuseries ever. The streaming giant’s new ad-supported cheaper subscription service also helped spur new more price-sensitive subscribers to the platform, which has allowed the tech giant to weather the macroeconomic headwinds.

2022 was a very tough year for Big Tech all round, but shares in Netflix rallied 7% after-hours, with the stock continuing its uptrend since the nadir last summer. However, its market valuation is still less than half of that at its peak in October 2021, suggesting there is still a long way to go to restore the tech’s market dominance.