November 22, 2016

Pegler’s market report – 22.11.16: UK retail sales boom in October as shoppers bag winter bargains

As published in the Brighton Argus (22.11.16) Business on page 21 under the title Pegler’s Market Report:

UK retail sales boom in October as shoppers bag winter bargains

British retail sales grew at the fastest annual pace in 14 years in October as shoppers stocked up on winter clothing and bumper Halloween sales gave supermarkets a boost. Total sales volumes jumped 1.9pc in October compared with September, driven by clothing and footwear sales. This pushed up the annual rate of growth to 7.4pc, representing the strongest pace of growth since April 2002. Economists said they believed the figures were also boosted by a rise in spending by foreign visitors following the dramatic drop in the value of the pound. Domestic residents may also be staying at home and spending here rather than booking a weekend away and taking a hit on the exchange rate.

The US dollar has rallied since Trump’s victory on November 8 hitting a 14-year high against a basket of currencies, on expectations inflation which drive aggressive rate hikes. Upbeat US economic data underpinned the so called ‘greenback’, as did comments from Federal Reserve Chair Janet Yellen, who provided a strong signal that US interest rates will likely increase by year-end, in line with most market participants’ expectations.

Investors in CRH, the biggest producer of asphalt for highway construction in the US, have taken comfort in the additional infrastructure funding that was approved last week following Donald Trump’s election victory. Shares rallied to a nine-year high on hopes of a $1 trillion infrastructure spending package under a Trump administration.

Meanwhile, Royal Mail became one of the biggest laggards, falling sharply, after it posted a 5pc drop in first-half profit, reflecting deteriorating volume trends in marketing mail and increased competition from new entrants.

Tour operator Tui, which has its UK headquarters in Crawley, struggled on the back of a rating downgrade. Morgan Stanley slashed its rating as it believes the group will spend up to €1.5bn disposal proceeds on “a heavy capital expenditure programme” rather than on M&A or cash returns to shareholders.

Shares in Morrisons initially rose on news the supermarket giant had launched a new service offering Amazon Prime customer same-day deliveries of goods from it stores in and around London causing shares in its online partner Ocado to slump. Thereafter, Morrisons shares slipped back after broker Bernstein warned the deal is part of a wholesale agreement, where Amazon is able to charge its own prices and so, it could undercut Morrisons’ offer.

Elsewhere, mid-cap Virgin Money tumbled after US billionaire Wilbur Ross sold his remaining stake in the challenger bank for £171.5m.

By David Pegler, Brighton Capital Management