No FTSE record today
This mornings’s weak retail sales report helped to deprive us of another record closing high on the FTSE 100.
The blue-chip closed down 49 points at 7513. Other European markets also dropped.
European Closing Prices:#FTSE 7513.11 -0.65%#DAX 13379.27 -0.66%#CAC 5480.64 -0.48%#MIB 22962.59 -0.18%#IBEX 10230.7 -0.83%
— IGSquawk (@IGSquawk) November 7, 2017
#FTSE closing prices#FTSE100 7,513.11 -49.17 (-0.65%)#FTSE250 20,307.11 -125.49 (-0.61%)#FTSEAIM100 5,377.07 +4.05 (+0.08%)
— Lee Garcia (@leegarcia121) November 7, 2017
Next, M&S both shed 1% and Kingfisher lost 2.9%, while security firm G4S tumbled 4.7% after lowering its forecasts.
Tomorrow M&as releases its own sales figures, so traders will be keen to discover how it is faring.....
On that note, goodnight and thanks for reading and commenting. GW
SSE’s hopes of combining its UK operations with nPower could fall foul of comjpetition authorities.
Neil Wilson of ETX Capital reckons these concerns could sink the deal.
He says:
Cutting the big six down to a big five would hardly help competition, which is exactly what the government wants. A merger would create the UK’s largest household energy supplier with a 24% market share, ahead of British Gas’s 22%.
The problem and arguably the rationale is that the big six are losing customers at a record pace to smaller suppliers. Smaller suppliers now account for more than 8% of market share, up from 1% just three years ago, according to Ofgem data. The big six also face a hit from price caps – consolidation has its appeal in this kind of environment – just look at the gambling industry’s raft of deals.
Npower has been on the ropes for some time, racking up losses and losing customers quickly following well documented customer service troubles and higher costs. Cost cutting has been severe but not enough to full offset worsening market conditions and reduced margins. Profits in the first half fell 114% from a year ago and it’s on course for a third consecutive annual loss. Years of problems have led to restructuring but it’s clearly not working quickly enough.
Updated
SSE and npower in talks
There’s big news in the British energy market this afternoon, with SSE and npower announcing plans to create a new UK energy provider.
If they succeed, it would leave Britain with just five major suppliers. That could threaten competition at a time when public anger over rising energy bills is palpable.
My colleague Adam Vaughan explains:
SSE and npower, two of the UK’s biggest energy companies, are planning to combine their household energy supply businesses in a potentially seismic shake-up of the market.
The two firms said they are in well-advanced talks to create a new independent energy supply firm. The new business would combine the 13 million customers they currently supply with electricity and gas.
If the move goes ahead it would see the end of two of the biggest brands in the energy retail market, and is likely to raise competition concerns as the so-called big six that own 80% of the energy market shrinks to the “big five”....
More here:
Over in New York, the main US stock indices have hit new record highs at the start of trading.
Dow, Nasdaq, S&P 500 hit record highs shortly after opening bell. https://t.co/FzRobQH1RD pic.twitter.com/MrGzLVvrkq
— CNBC Now (@CNBCnow) November 7, 2017
World stock market hit new high
The long equities rally has driven world stock markets to a new record high.
The MSCI All-Country World Index burst through the 500-point mark for the first time today.
That follows a series of record highs on Wall Street, and yesterday’s rally in London which pushed the FTSE 100 to a record close.
Earlier today, Japan’s Nikkei also popped higher to its highest closing point in 25 years.
*JAPAN'S NIKKEI 225 CLOSES AT HIGHEST SINCE JANUARY 1992
— lemasabachthani (@lemasabachthani) November 7, 2017
Investors are in an optimistic mood following after a series of big companies beat expectations recently (Apple, Amazon, Caterpillar, Mastercard, BP and Goldman Sachs to name but a few).
Perhaps surprisingly, the rally has continued despite some central banks preparing to unwind their monetary stimulus programme.
Government bond prices have also rallied in recent years, of course, as this chart from g+ Economics shows:
G+’s Lena Komileva says the financial universe has “tilted in recent months”, with the US Federal Reserve unwinding its balance sheet, the ECB slowing its quantitative easing scheme next year, and the Bank of England raising interest rates last week.
She warns that there could be volatility ahead, as the process of normalising monetary policy continues.
Global bonds - equity correlations have been virtually 1 over the past year (see above chart), following virtually uninterrupted linear growth, pretty much void of volatility, despite historically tight credit spreads and a growing negative-yield bonds universe. This is the type of artificial liquidity environment where asset bubbles and systemic crises are born.
As QE tapering gets underway expect a gradual pivot in market sensitivity back towards domestic fundamentals and real risk pricing. It is little surprise that central banks want to exit the current markets environment and follow a return to normal economic activity with policy normalisation, as fast as possible, without putting reflation objectives at risk.
Greek finance minister denies threat of economic collapse
Over in Greece finance minister Euclid Tsakalotos has reacted furiously to claims – issued by parliament’s state budget office no less – that the country faces economic collapse if its staggering debt load is not substantially reduced.
Our correspondent Helena Smith reports from Athens
The budget office’s dramatic warning that bankrupcy looms unless Greece gets debt relief was dismissed outright by Tsakalotos.
In comments to the leftwing daily, Efimerida twn Syntakton, the Greek finance minister described the claim as a “mistake” based on “outdated figures.”
“This is a error,” he said insisting that the office had been lead to the wrong conclusions on account of “erroneous calculations” over the amount of debt repayments Greece will be called to make between 2021 and 2026.
In a subsequent announcement the finance ministry said the House office had employed data from 2013 before short-term debt relief measures were agreed by eurogroup finance ministers in May 2016 and when the interest rates on payments was much higher.
Parliament’s president Nikos Voutsis went further accusing the state budget office of fear-mongering, saying:
“I am surprised at the use of invalid data and ensuing public relations stunt.”
In its quarterly report released Monday the budget office warned that bankruptcy was inevitable because interest payments on maturing debt after 2021 were so high.
“Without substantial debt relief, Greece will go bankrupt,” it warned.
At 180%, Greece has the highest debt to GDP ratio of any EU member state.
But with less than a year to go before the country exits a third international bailout progamme, Athens’ leftist-led coalition is keen to change the narrative to one of hope after years of gruelling austerity meted out in exchange for rescue funds.
I mentioned earlier that house price shortages were keeping UK prices up....
...and bang on cue, online estate agents HouseSimple.com have confirmed that this is an issue.
Its Property Supply Index found that the total number of new properties marketed by estate agents across the UK fell by 4.3% in October.
The number of listings fell in 75% of UK towns and cities, including a 37.4% drop in Torquay and 37.0% in Oxford. In Wolverhampton, property listings have fallen for five months in a row.
Alex Gosling, CEO of online estate agents HouseSimple.com. says:
“The housing market is in desperate need of a prolonged period of supply growth rather than isolated months where seller numbers rise, only to fall back the following month.
We probably won’t see numbers jump again this year, but steady levels in November and December would at least give the market a strong base going into the New Year, particularly with some heavy Brexit headwinds heading our way.
This month’s Black Friday sales will be crucial for UK retailers, especially as Amazon is gunning for them with 10 days of sales and a pop-up store in Soho.
High Fletcher, global head of consultancy and innovation at consultancy firm Salmon says retailers might profit by launching their own promotions pronto....
A strong focus on digital and innovation will be vital for consumers wanting a quick and convenient service – the figures are suggesting, after all, a shift from buying items they want to rather buying items they need.
As consumers increasingly flock online to purchase goods, retailers should be looking to start Black Friday sales sooner rather than later to boost the slump in non-food sales, perhaps by even creating their own ‘peak days’ to stave off the competition from Black Friday stalwarts such as Amazon.
The next month or so will be a game-changer for many in the retail business.
Retailers drag FTSE 100 away from record high
Shares in several major British retailers have dropped today, following the news that sales fell in October.
Kingfisher, which operates the B&Q DIY chain, and Marks & Spencer are both among the biggest fallers on the FTSE 100 this morning.
That has helped to pull the blue-chip index down by 16 points to 7546, denting hopes that we could see a record alltime high today.
Security firm G4S are the biggest faller after downgrading its full-year sales growth forecasts this morning, guidance from between four and six per cent to three and four per cent.
Associated British Foods are also out of favour, after warning this morning that sugar profits would fall in 2017-2018 due to lower EU prices.
#ABF shares taking a bit of a pasting on outlook -3.71%
— Neil Wilson (@neilwilson_etx) November 7, 2017
That has taken the shine off Primark’s decent performance.
Incidentally, Primark’s UK sales rose by 10% on a total basis, not a like-for like basis as I wrote earlier (now corrected).
John Lewis sales fall again
In another sign that shoppers are cutting back, sales at John Lewis’s department stores fell by 3.7% last week compared to a year earlier.
Takings in the seven days to 4th November fell to £102.03m, from £105.98m in 2016.
Homeware sales shank by 7% and electrical and home technology takings tumbled by 8.4% -- despite the iPhone X launch boosting mobile phone sales.
The spooky season provided some cheer, though; John Lewis’s Halloween sales jumped by 24% year on year.
One week’s sales can be deceptive, but this chart shows that sales have been lagging 2016 for several weeks now...
Waitrose, which is part of the John Lewis group, reported a 0.5% drop in total sales last week.
Eurozone retail sales have beaten forecasts, in another sign that Europe’s economy is strengthening.
Eurozone retail sales jumped by 0.7% in September, according to new figures from Eurostat. On an annual basis ,sales volumes were 3.7% higher than a year ago.
Euro area #Retailtrade +0.7% in September over August, +3.7% over August 2016 https://t.co/FShaHDrjXI pic.twitter.com/BVJsSdqD9z
— EU_Eurostat (@EU_Eurostat) November 7, 2017
Euro area consumers BUY MORE STUFF. pic.twitter.com/sGvUMoqhmz
— Frederik Ducrozet (@fwred) November 7, 2017
In contrast, retail sales across the UK shrank by 0.8% in September, according to figures released last month.
Jeremy Leaf, a north London estate agent, agrees that the shortage of UK houses are keeping prices up.
On the face of it, these figures are quite encouraging because they continue to demonstrate the market resilience that we have grown accustomed to over the past few months. However, when you look behind the numbers you realise that much of the growth is supported by continuing shortage of supply which we are also finding on the high street.
‘Looking forward there is no doubt that people will continue to trade but more nervously, particularly in the light of higher mortgage costs and pressure on real income.’
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The drop in retail sales last month shows that UK shoppers are holding onto their cash until they see a real bargain, says Hannah Maundrell, editor in chief of money.co.uk:
She explains:
“Despite retailers best efforts it’s not surprising households have tightened their purse strings in light of inflation rising and the lack of wage growth. Everyone is dubious about parting with their cash “just in case”.
“We’re coming into what is typically the busiest period of the year for retailers, however bargain blindness has hit the retail sector hard as the expectation of rock bottom prices means we’re less and less willing to part with our cash if we have to pay full price.
“We’re less likely to buy and expect discounts which causes the perfect storm for retailers.”
Discount fashion chain Primark has defied the slowdown in UK retail sales.
It has reported a 10% rise in sales across its British stores in the last year [corrected].
Parent company Associated British Foods says Primark’s share of the UK clothing market “increased significantly” -- suggesting it is grabbing sales from other retailers.
After a good first half, third quarter trading was strong in the lead-up to Easter, with the growth also benefiting from comparison with prior year results that were affected by poor weather and an earlier Easter holiday. Fourth quarter trading was equally strong, fully reflecting the success of our consumer offering.
This was driven by the ability of our buying, merchandising and design teams to identify and deliver key seasonal trends. The consumer response to our new autumn/winter range has been encouraging.
In total, Primark posted a 14% rise in sales on a “constant currency” basis (stripping out foreign exchange moves) across Europe and the US. Like-for-like sales were only up by 1% though
Updated
If Halifax are right, then house prices are rising much faster than wages (up 2.1% in the last year) and interest rates (now 0.5%).
Lucy Pendleton, Founder Director of independent estate agents James Pendleton, says the lack of supply of new homes is pushing prices up.
Here’s her take on the news that prices rose by 4.5% in the last year.
“We’ve since had a rate rise but what you’re seeing isn’t one last hurrah as people rush to grab the best mortgage rates. It’s that same old ball and chain around the UK property market’s neck - weak supply.
“The countdown on rates may have helped support demand but mortgage approvals were down. We know stiff competition for homes exists but to see approvals and prices diverge in such dramatic fashion is surprising.
“There will also be an echo from September’s back-to-work bounce, as deals brokered before the summer holidays complete in the Autumn, but such a strong second month is uncharacteristic and shows the market in surprisingly rude health.”
Halifax: UK house prices are still rising
UK house price inflation has accelerated again, according to the latest survey from Halifax.
The lender reports that house prices rose by 4.5% in the last quarter, compared to a year ago. That’s up from 4% a month ago, and the fastest annual increase since February.
During the month, prices picked up by 0.3%.
It suggests that buyers weren’t deterred by (accurate) predictions that the Bank of England would raise interest rates this week.
Halifax marks house prices up 4.5% over the past year even if it doesn’t feel like it is. pic.twitter.com/PMYpc5MH8i
— Henry Pryor (@HenryPryor) November 7, 2017
These housing surveys can be volatile, so should be treated cautiously.
Last week, Nationwide also reported that house prices had risen -- but only at an annual rate of 2.5%.
Brits may be cutting back on clothes, but they’re still finding money for essentials such as, err, posh tonic water.
Fever-Tree, the upmarket mixer maker, has told the City that its results this year will be ‘materially’ ahead of market expectations. It looks like its 5th profit upgrade this year
The company, founded just 12 years ago, reckons that it’s dominating the rest of the market, saying:
The exceptional performance in the UK, the Group’s largest market, has been particularly impressive with the rate of sales growth and momentum strong across both the on and off trade.
The mixer category is now the fastest growing category across the UK soft drinks sector with Fever-Tree responsible for 97% of the value growth in retail over the last 12 months.
Shares have jumped 10% in early trading, to £21.40. Three years ago they floated at just 134p....
Updated
UK fashion retailer New Look has also reported a drop in sales over the last six months, another sign that the sector is going through a tough patch.
New Look posted a loss after tax of £72.7m for the six months to 23rd September this morning, after suffering a 4.5% drop in revenues.
The retailer firm also revealed that Alistair McGeorge, former boss, been parachuted in as executive Chairman.
McGeorge says:
“Today’s results reflect another tough period of trading for the company amid a challenging retail environment on the UK high street.
Whilst we’re not anticipating a reversal in fortunes overnight, I am confident we will implement the necessary changes to get the company back on track.
Today’s financial results, though, show that McGeorge has a challenge on his hands:
- Revenue -4.5% to £686.0m (H1 FY17: £718.1m)
- New Look Brand like-for-like sales -8.6%
- UK like-for-like sales -8.4%
- Own website sales -7.6%
- Third Party E-commerce sales +17.0%
Paul Martin, head of retail at KPMG, says the drop in UK retail sales in October is a “real disappointment”
“Clothing sales were particularly hard hit. After a brief uptick, fashion sales reverted back to the dreary theme we have seen for a number of months this year.
Unseasonably warm weather last month will not have helped, but this is unlikely to be the only reason the new ranges are proving unpopular.
He suggests that customers might be holding back until the ‘Black Friday’ deals arrive.
“Overall growth online was lacklustre at best, although health and beauty products continued to stand out as a strong performer. The burning questions for retailers will be whether shoppers are holding off their purchases until Black Friday, and whether retailers can recover from this month’s poor performance to end the year on a high.
Black Friday (an idea imported from America) lands on 24th November, so we’ll soon know whether October’s meagre pickings were just a blip or something more serious....
The agenda: UK retailers hit by falling non-food sales
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The storm clouds gathering over the UK’s retail sector have darkened, with a new survey showing that Brits cut back last month.
Retail sales shrank by 1.0% on a like-for-like basis in October, compared to a year ago, according to the British Retail Consortium.
Worryingly, non-food retail sales shrank by 0.4% over the last quarter on a like-for-like basis -- the worst reading since the BRC started counting in January 2011. That includes a 2.9% slump in sales of non-food items within stores (rather than online).
Although food sales did rise, the report is another indication that Britain’s consumers are being squeezed by the rising cost of living, and economic uncertainty.
Helen Dickinson, chief executive of the British Retail Consortium, says the report will alarm shop owners:
“It was a meagre month in October for retail sales as shopping activity slumped. With total growth at its lowest since May and below the 12-month average, retailers will have cause for concern as they prepare for the crucial run up to Christmas.
“The decline was driven by the worst performance of non-food sales since our record began in January 2011, as consumers appear to have opted for outdoor experiences and excursions during half term, over visits to the shops. The growth in food sales meanwhile, adds some colour to this otherwise anaemic picture, but these figures are very much buoyed by inflation.
She blames the jump in inflation -- which hit 3% in September as the fall in the pound drove up import costs.
“Real consumer spending power has been on a downward trend in the last year as the acceleration in inflation has caused shoppers to become ever more cautious in considering what purchases they can afford. Many now face higher borrowing costs, given the rise in interest rates, which will only serve to heap further pressure onto household finances.
Here’s our report:
Foreign exchange expert Kit Juckes of Société Générale isn’t impressed either:
Yipper Dee doo dah......not....UK retail sales falter in October – BRC https://t.co/BHHJ8oIg8k via @fastFT
— Kit Juckes (@kitjuckes) November 7, 2017
Also coming up today....
European stock markets are expected to open higher, after the FTSE 100 hit a record closing high last night.
European opening call @LCGTrading $FTSE +18 points at 7580$DAX +42 points at 13510$CAC +10 points at 5517$IBEX +42 points at 10358
— Ipek Ozkardeskaya (@IpekOzkardeskay) November 7, 2017
We’ll get a new healthcheck on Britain’s property market when Halifax publishes its monthly house price figures.
Trader will also be watching the oil price, which nudged a two-year high yesterday after last weekend’s Saudi political shake-up. Overnight, US president Donald Trump backed Riyadh....
I have great confidence in King Salman and the Crown Prince of Saudi Arabia, they know exactly what they are doing....
— Donald J. Trump (@realDonaldTrump) November 6, 2017
....Some of those they are harshly treating have been “milking” their country for years!
— Donald J. Trump (@realDonaldTrump) November 6, 2017
Car firms Toyota and BMW are reporting results this morning, as are food and clothing group Associated British Foods, security group G4S and insurance companies Hiscox and Direct Line.
The agenda:
- 7am GMT: German industrial production figures for September
- 8.30am GMT: Halifax’s UK house price survey for October
- 10am GMT: Eurozone retail sales for September
Updated
