UK equities ended higher, led by supermarkets after Morrisons reported an unexpected increase in sales over Christmas.
Shares in Morrisons gained after the grocer delivered like-for-like (LFL) sales growth of 0.2% in the nine weeks to 3 January, well ahead of the 2% decline predicted by analysts. Revenues over the Christmas period were helped by LFL transaction numbers in core supermarkets up 1.3% on the same period last year and online grocery sales up almost 100%.
Tesco, J Sainsbury, Marks & Spencer and Ocado Group advanced following the update.
Investors seemed to shrug off figures from Kantar Worldpanel showing sales in the British grocery market fell 0.2% in the 12 weeks to 3 January, due to the ongoing supermarket price war amid fierce competition.
Sainsbury’s was the best performer with sales up 0.8% during the period while Tesco, Asda, and Morrison’s saw sales declines of 2.7%, 3.5% and 2.6%, respectively.
Separate disappointing figures on retail sales from BRC-KPMG also didn’t seem to bother the market. UK retail sales were flat in December, with a 0.1% like-for-like increase and total sales up 1.0%, the report showed.
In contrast, a report from Nielsen revealed consumers spent £3.3bn in the week to Boxing Day, up 8% on the same period a year ago. Supermarket sales during Christmas week were 43% higher than in an average week, when around £2.3bn is spent, Nielsen said.
Helping to lift sentiment elsewhere, China’s central bank set the yuan firmer on Tuesday.
The People’s Bank of China set the mid-point for the yuan at 6.5628 per dollar, just two pips weaker than the previous strong fix and firmer than its spot levels late on Monday. The spot yuan weakened from its overnight close to 6.5733 to the dollar, but offshore it strengthened as much as 180 pips to 6.5660.
“This recovery in the offshore yuan could well be enough to help put a floor under stock markets in the short term, as US markets managed to stabilise yesterday despite posting new multi week lows during the day,” said Michael Hewson, chief market analyst at CMC Markets.
On the economic data front, UK industrial production rose 0.9% in November from the same month a year ago, missing expectations for a 1.7% rise. Manufacturing output fell 1.2% year-on-year in November, more than the 0.8% dip that was anticipated by analysts.
Job openings in the US nudged higher in November, according to data released by the Bureau of Labor Statistics. Openings came in at 5.43m from 5.34m in October and compared with economists’ expectations for a 5.41m reading. The figure was down from a record 5.7m in July but up 11% on the previous year.
The NFIB’s index of US small business optimism edged higher in December by 0.4 points to 95.2, but remained “well below” the gauge’s 42-year average of 98.0.
Meanwhile, oil prices swung between falls and gains throughout the day. At 1713 GMT Brent crude fell 2.8% to $30.67 per barrel and West Texas Intermediate dropped 3.5% to 30.32 per barrel.
“The overwhelming supply and demand equation that has encouraged dramatic selling is going nowhere anytime soon, with a persistent aggressive oversupply in the markets consistently haunting investor attraction, while weaker forecasts around global growth weighs on demand, and it is likely that more global economic downgrades from major institutions are to follow early this year,” said FXTM chief market analyst Jameel Ahmad.
In corporate stocks, Debenhams rallied after saying like-for-like sales were up 1.9% in the 19 weeks to 9 January, comfortably beating expectations for a 0.1% drop and better than last year’s 0.8% decline.
BHP Billiton slumped after HSBC downgraded the stock to ‘reduce’ from ‘hold’ and cut the price target to 590p from 1,100p saying the company faces further headwinds from oil and iron ore.
Premier Oil plunged after Jefferies cut its rating on the stock to ‘hold’ from ‘buy’ and slashed the target price to 33p from 120p. “The near-term outlook for the oil market is bleak as global over-supply continues,” said analyst Mark Wilson.
Greggs declined after Shore Capital downgraded the company from ‘buy’ to ‘hold’ despite posting a 5.2% rise in sales for the 52 weeks to 2 January 2015. Shore Capital noted the company’s warning about the National Living Wage which comes into effect this year, and downgraded the stock on valuation grounds.
Anglo American shares jumped after the company finally completed the exit from its Tarmac joint venture, with the sale of assets in the Middle East to a subsidiary of French engineering and construction group Bouygues.
Shire rebounded from Monday’s losses after Credit Suisse upped the stock to ‘outperform’ from ‘neutral’, following the proposed merger with US peer Baxalta.
The FTSE 250 was in the black by mid-afternoon Tuesday, rising 124.94 points (0.75%) to 16,783.26.
Debenhams led the charge after the retailer reported solid Christmas trading, beating analysts’ expectations.
For the 19 weeks to 9 January, like-for-like sales were up 1.9%, comfortably beating expectations for a 0.1% drop and better than last year’s 0.8% decline. Group transaction value rose by 2.5% and online sales were up 12.1%. Debenhams said the growth in Online reflects increasing customer confidence in its service as well as later cut-off times and more competitive premium delivery charges.
The company said further progress on its strategic priorities supported its performance, delivering “a good Black Friday” and full price sales growth across the period of 5%. International sales in the period grew in line with expectations, with Magasin du Nord continuing to deliver good growth and record Christmas trading helped by a recovering Danish economy.
Morrison’s also delivered an unexpectedly solid Christmas trading update in a welcome turnaround under new chief executive David Potts. Like-for-like (LFL) sales were up 0.2% in the nine weeks to 3 January, miles better than the 2% decline predicted by analysts, with LFL sales including fuel down 0.6% over the period. Revenues were helped by LFL transaction numbers in core supermarkets up 1.3% on the same period last year and online grocery sales nearly doubling. With deflation of 3.2% recorded, this implied same-store volume growth of nearly 3.5%, with the feeling that the stories are beginning to attract customers back.
Interestingly, industry data from Kantar Worldpanel on Tuesday showed the effect on group sales of store closures, with a 2.6% decline in sales over a 12-week period to 3 January. Morrison’s said it now expected full year 2015/16 underlying profit before tax to be in the range of £295m-£310m before the £60m restructuring and store closure costs.
However investors weren’t entirely happy with news from Greggs of a healthy 5.2% rise in sales for the 52 weeks to 2 January 2015. The bakery chain said it expected full year results to be in line with expectations, with statutory total sales for the 52 weeks of 2015 up 3.7% against a 53 week year in 2014. Greggs said a growing demand for “on the go” breakfasts was becoming a key sales point with early-morning coffee also becoming more popular, and plans to add “flat white” and an improved “mocha” coffee to its beverage offerings.
But Shore Capital’s Darren Shirley wasn’t warmed by the news, downgrading the company from ‘buy’ to ‘hold’. He noted the company’s warning about the National Living Wage which comes into effect this year, and downgraded the stock on valuation grounds. “with the forecast FY2015 EBIT margin of 8.7% back close to historic highs (9.1% in 2004), we believe we have come to the end of the recent upgrade cycle and following a +50% share price appreciation over the past 12 months expect a more sedate stock price performance in 2016.”
Michael Page’s mixed bag of numbers also didn’t give investors much confidence, reporting record full year gross profits but stating that currency fluctuations had hit fourth quarter results.
The company said exchange rate movements hit full year gross profits of £555.9m by £26m. Group fourth quarter gross profits fell by 0.5% to £135.6m on a reported basis, but were up by 5.3% at constant currency levels.
Page said fourth quarter gross profit growth in constant currencies was delivered “despite trading conditions deteriorating”, notably in its UK and Asia Pacific regions, as well as in Brazil and the Middle East. “However, our businesses in Continental Europe, the US and Latin America, excluding Brazil, continued to grow strongly,” the company said. It added that there was strong growth in Europe, but political uncertainty and the weakness in the oil and gas sector saw a decline of 32% in the Middle East.
European equities bounced back on Tuesday after China intervened repeatedly to stabilise its currency, although economists and strategists sounded a cautious note.
The benchmark Stoxx Europe 600 finished 0.88% higher, France’s CAC 40 gained 1.53% and Germany’s DAX another 1.63%.
Stateside, the Dow Jones Industrial Average and the S&P 500 managed to eke out small gains on Monday albeit in choppy trading.
In Asia, stocks were mostly lower, with the exception of mainland China, where the Shanghai Composite ended up 0.2%.
“There are signs that markets are finding their feet again, with China’s Yuan remaining somewhat stable for a third session which appears to have finally brought some calm to Chinese equity markets,” said Craig Erlam, senior market analyst at Oanda.
“Of course, this could just be the calm before the storm which is why we may see investors proceed with caution in the next couple of days.”
Overnight, Beijing intervened repeatedly in the offshore yuan market provoking a spike in yuan lending rates in Hong Kong which may serve to deter speculation against the currency, market watchers said.
Acting as a backdrop, economists at JP Morgan reportedly pushed back their call for the first increase in Bank Rate by six months to November.
To take note of, Morgan Stanley’s chief US economist Ellen Zentner told Bloomberg TV the American economy would hold up “well” in 2016 – despite rising interest rates – growing by 1.8%, with strength in the trade-weighted US dollar to be an important deciding factor for the Fed.
Zentner predicted the Fed would stay put at its March meeting and hike rates three times this year.
In European corporate news, retailers were in focus, with supermarket operator Morrisons surging in London after it delivered an unexpectedly solid Christmas trading update. Like-for-like sales were up 0.2% in the nine weeks to 3 January, beating expectations for a 2% drop.
Peers Tesco and Sainsbury were both firmly in the black. Sainsbury also benefited from data released by market research firm Kantar, which showed the supermarket chain’s market share has risen to 17% in the UK.
Debenhams’ Christmas sales also came in comfortably ahead of expectations, pushing the stock sharply higher.
German retailer Metro AG advanced after reporting strong Christmas sales, with revenue in line with expectations.
Car maker Peugeot was also on the front foot after it posted a 1.2% rise in 2015 sales thanks to strong demand in Europe.
Fiat Chrysler gained ground after chief executive Sergio Marchionne said the company would end the year at the top end of its financial guidance.
Front month Brent crude futures continued to spiral lower, falling 3.4% to $30.50 per barrel on the ICE.
“Short positions on oil prices are now at a record high but it’s times like these that a surprise squeeze higher can occur,” said Brenda Kelly, head analyst at London Capital Group.
US stocks closed higher on Tuesday after China’s central bank set the yuan higher, however that sentiment was offset by oil prices briefly falling below $30 a barrel.
The Dow closed up 0.72% while the Nasdaq rose 1.03% and the S&P 500 gained 0.78%.
Oil prices were in the red after concerns that the turmoil in China would hit demand for fuel. By 2215 GMT, West Texas Intermediate crude fell 2.16% to $30.87 per barrel and Brent dropped 2.16% to $30.87.
“The overwhelming supply and demand equation that has encouraged dramatic selling is going nowhere anytime soon, with a persistent aggressive oversupply in the markets consistently haunting investor attraction, while weaker forecasts around global growth weighs on demand, and it is likely that more global economic downgrades from major institutions are to follow early this year,” said FXTM chief market analyst Jameel Ahmad.
Meanwhile the People’s Bank of China set the mid-point for the yuan at 6.5628 per dollar on Tuesday, just two pips weaker than the previous strong fix and firmer than its spot levels late on Monday. The spot yuan weakened from its overnight close to 6.5733 to the dollar, but offshore it strengthened as much as 180 pips to 6.5660.
“This recovery in the offshore yuan could well be enough to help put a floor under stock markets in the short term, as US markets managed to stabilise yesterday despite posting new multi week lows during the day,” said Michael Hewson, chief market analyst at CMC Markets.
The yuan has depreciated more than 1% since the start of the year, after losing 4.7% against the dollar last year.
In the US, job openings nudged higher in November, according to data released by the Bureau of Labor Statistics.
Openings came in at 5.43m from 5.34m in October and compared with economists’ expectations for a 5.41m reading. The figure was down from a record 5.7m in July but up 11% on the previous year.
Meanwhile, hires edged up to 5.2m from 5.17m while the number of people quitting their jobs increased 6.3% on the year to 2.83m.
US small business confidence also edged higher last month but the sector faced uncertainty with government policy-makers likely to be paralysed ahead of this year’s presidential election, according to the National Federation of Independent Business.
The NFIB’s index of small business optimism edged higher in December by 0.4 points to 95.2, but that remained “well below” the gauge’s 42-year average of 98.0, NFIB chief economist Bill Dunkelberg said in a statement.
In company news, Alcoa closed down 9% after reporting fourth quarter revenues on Monday night that missed expectations.
Lululemon Athletica rose 3.8% for the day after it raised its guidance for the fourth quarter on Monday evening, driven by strong holiday sales.
Anthem shares also ended the day 5.6% higher after the company revealed more members had been enrolled last year then it expected.
US stocks closed higher on Tuesday after China’s central bank set the yuan higher, however that sentiment was offset by oil prices briefly falling below $30 a barrel.
The Dow closed up 0.72% while the Nasdaq rose 1.03% and the S&P 500 gained 0.78%.
Oil prices were in the red after concerns that the turmoil in China would hit demand for fuel. By 2215 GMT, West Texas Intermediate crude fell 2.16% to $30.87 per barrel and Brent dropped 2.16% to $30.87.
“The overwhelming supply and demand equation that has encouraged dramatic selling is going nowhere anytime soon, with a persistent aggressive oversupply in the markets consistently haunting investor attraction, while weaker forecasts around global growth weighs on demand, and it is likely that more global economic downgrades from major institutions are to follow early this year,” said FXTM chief market analyst Jameel Ahmad.
Meanwhile the People’s Bank of China set the mid-point for the yuan at 6.5628 per dollar on Tuesday, just two pips weaker than the previous strong fix and firmer than its spot levels late on Monday. The spot yuan weakened from its overnight close to 6.5733 to the dollar, but offshore it strengthened as much as 180 pips to 6.5660.
“This recovery in the offshore yuan could well be enough to help put a floor under stock markets in the short term, as US markets managed to stabilise yesterday despite posting new multi week lows during the day,” said Michael Hewson, chief market analyst at CMC Markets.
The yuan has depreciated more than 1% since the start of the year, after losing 4.7% against the dollar last year.
In the US, job openings nudged higher in November, according to data released by the Bureau of Labor Statistics.
Openings came in at 5.43m from 5.34m in October and compared with economists’ expectations for a 5.41m reading. The figure was down from a record 5.7m in July but up 11% on the previous year.
Meanwhile, hires edged up to 5.2m from 5.17m while the number of people quitting their jobs increased 6.3% on the year to 2.83m.
US small business confidence also edged higher last month but the sector faced uncertainty with government policy-makers likely to be paralysed ahead of this year’s presidential election, according to the National Federation of Independent Business.
The NFIB’s index of small business optimism edged higher in December by 0.4 points to 95.2, but that remained “well below” the gauge’s 42-year average of 98.0, NFIB chief economist Bill Dunkelberg said in a statement.
In company news, Alcoa closed down 9% after reporting fourth quarter revenues on Monday night that missed expectations.
Lululemon Athletica rose 3.8% for the day after it raised its guidance for the fourth quarter on Monday evening, driven by strong holiday sales.
Anthem shares also ended the day 5.6% higher after the company revealed more members had been enrolled last year then it expected.
Oil markets faced up to another bearish session on Tuesday with Brent and WTI futures staying at 12-year lows and heading lower still, as oversupply concerns continued to dominate market chatter.
At 1705 GMT, Brent was down 2.22% or 70 cents at $30.85 per barrel, while WTI was down 2.83% or 89 cents at $30.52 per barrel, heading towards another record intra-session decline in wake of the supply glut and continuing worries over lacklustre demand.
Earlier in the session, the severity of the market decline led some OPEC members to call for an emergency meeting of the oil producers’ cartel to discuss a cut in crude production.
OPEC president Emmanuel Ibe Kachikwu said an extraordinary meeting could be held in early March. “We did say that if it the oil price hits the $35 per barrel, we will begin to look at an extraordinary meeting,” he added.
However, Saudi Arabia remains stubbornly resistant to calls for a production cut, claiming it does not wish to “subsidise” high cost non-OPEC oil production.
Away from the oil markets, base metal futures also fell across the London Metal Exchange board following further declines in Asia. Three-month delivery contracts of copper (down 0.4%), nickel (down 1.9%), zinc (down 0.9%) and tin (down 3.7%) extended the previous session’s losses in late afternoon trading. However, primary aluminium (up 0.6%) and lead (up 0.5%) futures posted nominal upticks.
Meanwhile, precious metals continued to slip lower. COMEX gold futures contract for February delivery fell 0.88% or $9.70 to $1,086.50 an ounce, while spot gold in Dubai was 0.74% or $8.09 lower at $1,086.11 an ounce.
Spot platinum was also down 0.61% or $5.11 at $839.44 an ounce, while COMEX silver fell to $13.77 an ounce, down 0.73% or ten cents.
Liz Grant, senior account executive at Sucden Financial, said, “Oil prices headed lower as did LME metals and despite intervention from Chinese authorities to calm investor fears, local equity markets are still weak having made fresh lows overnight.
“The USD remained fairly steady which prevented commodities from gaining any real traction to the upside.”
Finally, agricultural commodity futures were largely in positive territory over early trading calls stateside. CBOT corn (up 1.42%), wheat (up 0.69%), ICE cotton (up 1.06%), and CME live cattle (up 0.05%) futures headed higher. However, ICE cocoa (down 1.17%) futures slipped lower to $2,868 per metric tonne, well below their 20 and 100-day moving averages on the prospect of slugging global demand.
The dollar rose against a basket of global currencies on Tuesday, while the yuan strengthened after the People’s Bank of China set the mid-point for the currency at CNY6.5628 per dollar, just two pips weaker than the previous strong fix and firmer than its spot levels late on Monday.
The spot yuan weakened from its overnight close to 6.5733 to the dollar, but offshore it strengthened as much as 180 pips to 6.5660.
Jane Foley, senior FX strategist at Rabobank, said, “A 1.5% decline in the EUR/USD hardly turns heads these days, but a 1.5% decline in the yuan spawns strong selling in global equity and emerging market currencies, whilst plunging commodity prices stoke global deflation fears. One reason why the market is watching China so intensely is that all big economic regions have their own issues, so a weaker China means no spender of last resort.
“Beyond the above-mentioned channels of contagion, however, things are less clear-cut. US and European banks have only limited exposures to China (less than 4%) and so direct comparisons with either the US subprime or the European sovereign debt crisis fall short.”
Elsewhere, the US National Federation of Independent Business’ index of small business optimism edged higher in December by 0.4 points to 95.2, but remained well below the gauge’s 42-year average of 98.0.
At 1628 GMT, the dollar rose 0.05% against the yen to change hands at JPY117.800. The euro shed 0.21% against the dollar to change hands at $1.0836, while the greenback exchanged Swiss Francs at CHF1.0042 up 0.27%.
Meanwhile, the pound’s woes continued as it sank to a fresh five-and-half-year low, changing hands for the US currency at $1.4393, down 1.03% on poor industrial data. Industrial output fell 0.7% in November from October; the sharpest fall since the first quarter of 2013, according to data published by the Office for National Statistics.
Concurrently, manufacturing output fell 0.4% for a second month running, with a decline in pharmaceutical production having the biggest impact on the total figure..
Meanwhile, major commodity linked currencies took another predictable hammering with Brent oil futures staying low, and natural resources enduring another torrid session on the London Metal Exchange.
The greenback rose 0.39% versus the Canadian dollar changing hands at $1.4272. The beleaguered Australian dollar shed 0.27% against its US counterpart exchanging at US$0.6976, while the New Zealand dollar was down 0.44% exchanging at US$0.6531.
In Latin America, the dollar traded higher against major regional crosses including the Colombian (up 0.07%) and Mexican (up 0.27%) pesos, but stayed broadly flat versus the Brazilian real (down 0.10%).
