A bigger-than-expected increase in pre-Christmas sales is a shot in the arm for UK retailers. Our head of markets takes a closer look, and also analyses latest stock movements on Wall Street.
Following a few days of generally hawkish actions from central banks, investors have been rotating into more economically sensitive sectors at the expense of growth.
As such, the tech-heavy Nasdaq index in the US bore the brunt of the selling pressure, while the likes of the financials and utilities saw some support. More broadly, there were further indications to vindicate the Federal Reserve statement that the economy no longer needs increasing amounts of monetary support. Factory production was at the highest level in almost three years, while there was only a marginal increase in the jobless claims number, where employment remains a key plank to the Fed strategy over the coming months.
It also remains to be seen how consumer sentiment, vital for the progress of the US economy, will fare in the short term. It is possible that persistent inflationary pressure will begin to impact on the consumer’s propensity to spend, while economic impact of the highly transmissible Omicron variant has yet to wash through.
Ahead of future volatility as monetary support is wound down and the economy left to stand alone, markets have made strong progress. In the year to date, the Dow Jones is still ahead by 17.3%, the S&P500 by 24.3% and the Nasdaq by 17.8%.
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Retail sales in the UK rose by 1.4% in November, which was higher than expected, and were up by 4.7% compared to the previous year. Black Friday and increased shopping leading up to Christmas on fears of supply shortages both provided a fillip to sales, although as a lagging indicator the numbers do not incorporate the subsequent Omicron announcements and the latest inflation print, which could have a more detrimental impact in December.
Indeed, one impact of the variant is already being seen in travel, where the lifting of some restrictions brings into question the willingness, rather than the ability, of consumers to take to the skies. The stuttering recovery of the airlines and the hospitality sector in general will both remain under some pressure until the true impact of the latest variant can be measured.
In early exchanges, the UK indices reflected the caution of US and Asian markets overnight, leading to a mixed opening. The theme was also similar to the US, with some early strength in cyclical stocks such as the miners and the housebuilders slightly offset by a tepid showing from the oil majors following a dip in the oil price.
Even so, the main indices have had a decent run this year, buoyed by the previous drivers of economic recovery, M&A activity based on the UK as an attractive investment destination on valuation grounds, and for the more domestically-focused FTSE250, the unexpected resilience of the UK economy. As such, the FTSE100 remains ahead by 12.5% in the year to date and the FTSE250 by 10.5%.
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