- UK retail sales and consumer confidence in the spotlight as consumers battle inflation
- Treasury yields hit fresh highs amid higher-for-longer narrative
- Deliveroo sees 7% uplift in UK and Republic of Ireland as people treat themselves at home
- Stress increases in Chinese property market as Country Garden edges closer to default
- Oil price tops $92 a barrel as Middle East conflict anxiety spreads
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
Retail sales & consumer confidence
“There’s a flashing light on the UK’s consumer dashboard. UK retail sales fell much more than expected in September. Sales fell 0.9%, down from a 0.4% increase the previous month, and compared to expectations of a 0.2% rise. The cost-of-living crisis has seen steeper declines across furniture and lighting, watches and jewellery, clothing and department stores as consumers clutch the purse strings close to their chest, and choose not to spend on the non-essentials. The unusually warm weather has also seen shoppers hold off on their autumn/winter wardrobe updates. While no one was expecting the month to be a bright spot for the high street, the full picture suggests a harsher-than-expected reining in of discretionary spending. In value terms, spending is robust – largely because of inflation, but volumes are dropping. The confidence knock of spending more to get less has also shown up in The GfK consumer confidence index which has seen its biggest month-on-month decline in over three years. It now sits at minus 30, at levels last seen when the government introduced strict Covid-19 rules. This is a worse slide than expected and speaks to growing anxiety and the potential that we’re looking at a steeper consumer pullback than forecast as we head into the Christmas trading season.”
Treasury yields at 16 year highs
“Jerome Powell has hinted that monetary tightening may need to go further in order to curb inflation and economic strength. The notion that interest rates won’t be on the chopping block at the next policy decision has seen bonds sell of rather dramatically, with 10-year Treasury yields now sitting at levels not seen in 16 years. The higher-for-longer narrative is the story markets simply don’t want to hear. As bond yields jump upwards, the opportunity cost of investing in the stock market also increases, making equities a less attractive option. That’s a leading cause of the market malaise seen in recent trading sessions, and is likely to continue until the Treasury trajectory is back on less jumpy ground.”
Deliveroo earnings
“UK consumers are treating themselves at home, leading to a 7% increase in UK & Republic of Ireland revenue for Deliveroo. While the broader scene is one of a consumer slump, the uplift seems to suggest that people are saving money by having restaurant food delivered at home. Coupled with some supermarket plonk and dessert suddenly means Friday night date nights are about half the price. This is Deliveroo’s unique selling point – it’s not just a takeaways but has a real emphasis on higher calibre food outlets. While there’s been a boost recently, the wider economic environment will still need monitoring. In the case of recessions or further confidence knocks, even delivered food will be cast off the shopping list.”
Chinese property sector
“Chinese property stocks have slipped to the lowest levels since 2009 as China’s once prime builder has edged closer to default. A grace period to pay an interest payment’s coming to an end with the deadline looking unlikely to be met. Chinese economic data is relatively upbeat apart from property sales and investment, and it’s this differentiation that’s causing alarm bells to ring. The uncertainty surrounding the sector is reverberating in markets and investors are watching for signs of support measures from government.”
Oil price
“The oil price has topped $92 a barrel as concerns about recent conflict spreading throughout the Middle East rise. If Iran were to be pulled into the situation, there are fears the oil price could top $150 a barrel for Brent crude. While the demand picture remains muddied, the market is very much reacting to anxiety over supply.”
