Market Report: FTSE 100 stalls as recession risk heightens
- FTSE 100 stalls as UK GDP shrinks
- Retail Sales better than expected in November, boosted by discounting
- HSBC Canada sale gets approved
- Oil price back over $80 a barrel amid trade tensions
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
“The FTSE 100 has caught a mild cold on the final trading day before Christmas. The stagnation comes after the UK economy shrank by 0.1% last quarter, which was slightly worse than expectations of a flat reading. A drop in services outstripped construction and production. Personal spending has taken a dive, including on things like jewellery, restaurants and hotels. Some of the UK’s biggest stocks rely on consumers spending on non-essentials, which makes this development a tough one. It’s not a total surprise though, with inflation still way ahead of central targets and interest rates chipping away at household resilience. The contraction in the economy increases the chances of an official recession coming down the pipes in the new year, but a lot will rest on just how much of a merry Christmas we’ve had.
Overall, December has been a relatively positive one on the FTSE 100, helping push year-to-date movements into the green. The last month of the year has been buoyed by a lack of disastrous news, rather than any outstanding progress.
There’s slightly better news on the monthly retail front, where retail sales rose 1.3% in November, up from a revised 0% in October. There was strong growth in non-food sales, suggesting an increase in non-essentials. This is a positive development but does lend itself to a pullback in the new year, so will need monitoring. Non-food sales have also been boosted by an earlier Black Friday and broader discounting. While the topline might be moving, this trend has far reaching implications for profit margins, especially those who are already on thin ice. Getting tills ringing is a good thing, but it shouldn’t come at any cost.
Canada has approved the Royal Bank of Canada’s $10.2bn acquisition of HSBC’s domestic business. This is conditional on RBC waiving fees for the transfer of mortgages from HSBC. While the deal isn’t new news, it does solidify HSBC’s portfolio reshuffle. The group’s keen to focus on higher growth areas, with the capital freed up by sales able to be returned to shareholders in the form of special dividends, as is the case with the RBC acquisition, as well as being ploughed into more exciting Asian regions.
Oil shipments in the Red Sea dropped by more than 40% so far this week, compared to the daily average over the previous three weeks, according to Bloomberg. This has helped push the price of Brent crude back over the $80 mark. The overall impact on global supply is relatively limited at the moment, but there are jitters around what an escalation of the situation would mean.”
