In the UK market commentators and analysts have become very excited with regards to the retail figures just published, which (on the face of if) look like a very healthy print. Cable immediately spiked to be currently up 0.54% on the day. However, closer inspection reveals that the retail figures may not be all they seem.
Retail sales in the UK fell by -0.7% in November 2013, then increased by 0.3% in December 2013. Moreover, sales have only increased by 1.6% in the full year of 2013, versus the whole of the year of 2012. An improvement, but not as significant as the headline grabbing 2.6% monthly rise, published this morning, would lead us to believe.
There’s also the evidence that many UK high street retailers panicked in mid-December and began their sales very early, having sucked in huge imports, partly evidenced by the growing balance of trade deficit recently published. Rather than being stuffed to the rafters in their warehouses with deprecating stock, retailers pulled out all the stops to empty their shelves and warehouses.
So how will we know if these figures are showing any form of tangible improvement in the UK retail sector, given that this official ONS data is after all only a survey of retailer’s reports? Perhaps recent activity in the USA retail sector holds some clues.
In the USA JC Penney, a well renowned retailer announced this week that it’s closing 33 stores with circa 2,000 layoffs. Macy’s in the USA has also recently announced the closure of 5 stores with a loss of approx. 2,500 jobs, they’ve wasted no time in trimming their staff and stores to match their disappointing sales and lack of profitability during the holiday season. If we begin to see UK stores shedding staff then the bullish retail numbers might betray the real state of the UK retail sector.
UK Retail Sales, December 2013
Year-on-year estimates of the quantity bought in the retail industry showed strong growth in December 2013, increasing by 5.3% compared with December 2012. Comparing the 12 months of 2013 with the 12 months of 2012 the quantity bought in 2013 increased by 1.6% compared with 2012. Non-seasonally adjusted data showed that small stores experienced higher growth year-on-year than large stores with the amount spent in small stores increasing by 8.1% compared with 2.6% in large stores. Non-food stores provided the main contribution to the growth in the amount spent at small stores.
Portugal’s credit rating removed from Credit-Watch
This morning the credit agency Standard & Poor’s removed Portugal from its “Creditwatch” list. Being on the Credit-watch list is generally the precursor to an imminent downgrade. Portugal’s BB credit rating and negative outlook was reaffirmed, still leaving it stuck just two notches above “junk” status. S&P said the move reflects its expectation that Portugal will achieve its 5.5% of GDP budget deficit target in 2013 and approach its 4.0% target in 2014.
[quote]We base this expectation partly on indications that the economy has been showing signs of stabilisation since mid-2013. Stronger-than-expected export performance and an expected bottoming out of private consumption, amid a modest decline in unemployment should support Portugal’s fiscal performance in 2014. The negative outlook reflects our opinion that there is at least a one-in-three possibility that we could lower our ratings on Portugal during 2014.[/quote]
Market snapshot at 10:00 am UK time
The ASX 200 closed down 0.06%, the CSI 300 down 1.51%, the Hang Seng up 0.64%, and the Nikkei up 0.08%. Euro STOXX is up 0.45%, CAC up 0.48%, DAX up 0.50% and the UK FTSE 100 is up 0.08%.
Looking towards the New York open the DJIA equity index future is up 0.08%, the SPX up 0.06% and the NASDAQ future is up 0.06%. NYMEX WTI oil is up 0.37% at $94.31 per barrel, whilst NYMEX nat gas is down 0.55% at $4.36 per therm. Gold on COMEX is up 0.02% at $1240.40 per ounce, with silver on COMEX down 0.07% at $20.04 per ounce.
Forex focus
The Dollar Spot Index was little changed at 1,030.10 early in London’s trading session. The gauge, which measures the greenback’s value against a basket of 10 major currencies, has risen 0.6 percent since Jan. 10th, poised for the biggest weekly gain since the period ended Nov. 1st.
The greenback was at $1.3619 per euro from $1.3620, having advanced 0.4 percent this week. The yen was little changed at 104.34 per dollar after rising 0.2 percent yesterday. Japan’s currency has weakened 0.2 percent this week. The dollar was set for its biggest weekly advance against major peers in two months.
The pound rose by 0.53% percent to $1.6442 early London time after falling to $1.6315 yesterday, the lowest level since Dec. 25th. It has weakened 1 percent this week, headed for the steepest decline since the period ended Nov. 1. Sterling was little changed at 83.31 pence per euro, having dropped 0.5 percent since Jan. 10th.
The pound has strengthened 7.4 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The euro has gained 3.3 percent, whilst the dollar has weakened 0.8 percent.
The pound weakened for a third day versus the dollar before a report economists said will show a gauge of U.K. retail sales increased at a slower pace last month.
Bonds briefing
Ten-year yields (USA debt) were little changed at 2.84 percent early in London. The price of the 2.75 percent note due in November 2023 was 99 9/32. Treasuries fell 3.4 percent in 2013 while the S&P 500 returned 32 percent including dividends. Treasuries are beating stocks for the first month since August before data today economists said will show housing starts fell and industrial production slowed.
Germany’s 10-year Bund yield fell less than one basis point, or 0.01 percentage point, to 1.77 percent early London time, matching the lowest level since Dec. 4th. The 2 percent bund due in August 2023 rose 0.045, or 45 euro cents per 1,000-euro ($1,361) face amount, to 101.965. The rate has dropped seven basis points this week. Germany’s government bonds headed for a third weekly gain. Standard & Poor’s has removed Portugal’s debt rating from credit-watch, retaining the level at BB, and Fitch Ratings affirmed the Netherlands’s top grade. U.K. government gilt bonds have lost 2 percent in the 12 months through to yesterday. Treasuries declined 2.4 percent and German securities dropped less than 0.1 percent.
