14th Jan 2016 12:02
LONDON (Alliance News) - Weak oil prices outweighed some strong Christmas sales results from UK retailers midday Thursday, while US stocks were pointed to a tentative start after their heavy declines on Wednesday.
Meanwhile, the Bank of England said its Monetary Policy Committee voted 8-1 to keep UK interest rates on hold at 0.5%. The outcome and vote split were as expected.
Wall Street ended Wednesday's session substantially lower, with the Dow Jones Industrial Average closing down 2.2%, the S&P 500 down 2.5% and the Nasdaq Composite off 3.4%. Ahead of the open on Thursday, futures pointed to the DJIA opening down 0.1%, the S&P 500 down 0.2% and the Nasdaq 100 down 0.4%.
"The slide in crude prices pulled US stocks down with it, with the S&P 500 closing below the 1,900 level for the first time since the end of September, and wiping out the gains of the previous two days in the process," said CMC Markets' chief market analyst Michael Hewson. The S&P 500 ended Wednesday at 1,890.28 points.
Brent oil dipped below the USD30 a barrel mark, and reached a 12-year low. Brent initially fell to a low of USD29.94 a barrel on Wednesday, and early Thursday declined to USD29.69 a barrel. At midday Brent traded at USD30.41 a barrel.
"The issue here is that before long people will forget why they are selling, but continue to sell simply due to the fear factor," said Joshua Mahony, market analyst at IG.
"Yesterday felt like the beginning of that. US crude inventories actually rose less than expected yesterday, which ordinarily would have been bullish for oil prices, yet once more the trend was the most important thing and everyone is looking for another reason to sell crude, which of course means the FTSE 100 in particular is dragged lower once more," Mahony added, referring to the heavy weighting of oil-related stocks in the leading UK stock index.
Data from the US Energy Information Administration on Wednesday showed that crude stockpiles in the US rose by 234,000 barrels in the week ended January 8, well below the 2.5 million barrel increase that was expected by economists.
The weakness in New York and in the oil price dragged on European markets Thursday. The FTSE 100 traded down 2.0% at 5,840.84 points at midday, the FTSE 250 was down 2.2% at 16,337.38 and the AIM All-Share down 1.1% at 710.50.
On mainland Europe, the CAC 40 in Paris was down 3.1% as was the DAX 30 in Frankfurt.
Retailers again dominated UK corporate news. Tesco, up 4.3%, was the biggest of the few blue-chip gainers after the supermarket chain said group like-for-like sales in the third quarter of its financial year fell, but they rose over the key Christmas period to January 9, leaving the company on track for full-year profit.
Tesco said group like-for-like sales in the 13 weeks ended November 28 fell 0.5% year-on-year as a 1.5% decline in the UK offset 2.9% growth internationally. However, over the Christmas period in the six weeks to January 9, group like-for-likes rose 2.1%, with 1.3% growth in the UK and 4.1% growth internationally.
Together, covering the 19 week period to January 9, group like-for-like sales increased 0.4%, which Tesco said was its first reported increase in over four years.
Himanshu Pal, retail insights director for Kantar Retail, said Tesco's Christmas like-for-like sales is a validation of Dave Lewis' turnaround plan for the UK, which has started to bear fruit.
However, Pal warned there is still a difficult road ahead for the grocer as discounters chip away at market share and as shareholders apply pressure for improved return on investments.
"The UK grocery environment will continue to be tough in the near future but it's heartening to see the top-four grocers fighting back against the discounters," Kantar's Pal added.
Burberry Group shares were in and out of the FTSE 100 gainers list Thursday morning but traded down 0.7% at midday. The luxury goods retailer said like-for-like sales were flat in the third quarter of its financial year, a better performance than in the second quarter, as mainland China, a key market for the group, returned to growth.
The British heritage brand said its retail revenue for the quarter was GBP603.0 million. Retail revenue was flat on a like-for-like basis, an improvement on the 4.0% decline seen in the second quarter. Total retail revenue was up 1.0% in constant currencies. The group saw an improvement in its Asia Pacific business. Though Hong Kong remained weak, mainland China returned to growth.
Burberry also said its profit expectations for the full year remained unchanged, as cost-cutting measures have helped to offset its slowing sales growth. It added it will accelerate its cost-cutting plans in order to maintain its margins within a difficult environment and said it will review how to improve its organic growth opportunities.
In the FTSE 250, Restaurant Group was by far the worst performer in the index, down 17%. The restaurant operator, which runs Frankie & Benny's, Chiquito and Garfunkel's chains, said it expects its full-year earnings to be substantially ahead of the previous year after revenue rose by 8.0%. But it warned it is more cautious about 2016 on concerns about like-for-like sales trending lower.
The company said recent data from the retail sector and the wider economy has shown that the trading environment for many consumer-facing businesses has been tougher in recent months than it was earlier in 2015.
B&M European Value Retail was the best mid-cap performer, up 4.8%. The discount retailer reported growth in revenue in the third quarter of its financial year as strong sales in the UK offset a weaker performance in Germany, the latter hit by the weak euro.
Total sales in the 13 weeks ended December 26 rose 23% to GBP647.8 million from GBP527.9 million in the same period the year before. B&M said it achieved a record Christmas season in the UK, despite a challenging market, serving over four million customers in the Christmas week as it continued to gain market share.
JD Sports Fashion traded up 3.7% after it said trading remained strong during the key Christmas period, with like-for-like sales rising, and upgraded its expectations for the year to the end of January again.
The sports and outdoor clothing retailer, which upgraded its full-year expectations twice last year thanks to positive trading, said like-for-like sales in its core estate, including in Europe, rose 11% in the five weeks to January 2. As a result, the group said its headline pretax profit, before exceptional items, for the currently financial year is anticipated to be higher than the GBP136.0 million that the market currently expects.
Still ahead in the economic calendar, the European Central Bank releases the accounts from its last monetary policy meeting at 1230 GMT. In the US, initial and continuing jobless claims data are due at 1330 GMT, while EIA Natural gas storage data are expected at 1530 GMT.
James Bullard, the president of the Federal Reserve Bank of St Louis, gives a speech in Memphis, Tennessee, before the Economic Club of Memphis at 1330 GMT.
By Neil Thakrar; [email protected]; @NeilThakrar1
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