Pegler's market report - 29.03.16 - Brighton Capital Management

Pegler’s market report – 29.03.16

As published in the Brighton Argus (29.03.16) Business on page 21 under the title Pegler’s Market Report:

Next’s profit warning hits retail sector

Retail stocks dominated the final trading session before the Easter break after Next warned on profits. The retailer suffered its worst day in almost 18 years, with shares sinking 15%, as it cautioned investors this year could be the “toughest” since 2008. It also slashed its sales forecast to 4%, down from an earlier guidance of 6%.

Negative sentiment on the outlook from Next weighed heavily across the sector, with Associated British Foods and Marks & Spencer feeling the pressure. Tesco had its own problems as city analysts questioned the supermarket giant’s profit potential and the market’s over-optimism in the recovery story.

BHS, the department store chain that was sold last year for £1 by Sir Philip Green, has been saved from collapse after 95% of its creditors voted in favour of a rescue deal. Creditors and shareholders have supported a deal that will allow the 88-year-old retailer to cut its rent bill on its 164 stores. Hopefully the business can now focus on the group-wide updated turnaround plan and safeguard the future of BHS, protecting thousands of UK jobs.

Elsewhere on the high street, Game Digital posted a 32% slide in half-year profits, although a sales boost following a dire Christmas trading period meant revenues were better than feared.

Not more than a week ago the market was caught by surprise at how dovish the US Federal Reserve was with its statement and subsequent press conference from Janet Yellen, which generally put paid to any thoughts of an April rate rise. It’s taken less than a week for this narrative to reverse, begging the question as to what has changed in such a short space of time to prompt such a change of tone.

Consequently the rebound in the US dollar along with a sharp drop in the oil price prompted another selloff in global markets.

Looking ahead to what’s in store for investors next week – Chinese data returns in force, with a steer on how manufacturing and the services sectors are coping. US employment numbers will be key on 1 April, but we have jobs reports from around the globe, along with a final read on UK GDP. Q1 was choppy, but ended in more optimistic form. It remains to be seen whether Q2 will start in cheery fashion.