- FTSE opens up close to record highs
- Dollar set for worst slide in two months
- GfK consumer confidence survey paints gloomy picture for UK retail
- Burberry sales dip 3% in third quarter
- Brent crude down, nearing $78 per barrel
Derren Nathan, head of equity research, Hargreaves Lansdown:
“The FTSE is testing record highs once again this morning after Donald Trump’s address to the World Economic Forum sent a pulse of optimism across global markets, with the S&P also reaching a new high-water mark of 6,118.71. The prospect of an olive branch in the form of a trade deal with China has had a calming effect. The US president’s wish for lower interest rates also soothed some nerves, but that failed to stop 10-year yields in US Treasuries nudge up to 4.638%. This sets Trump on a potential collision course with central bankers. Yesterday’s US jobs data came in a little cooler than expected, but that’s unlikely to be enough evidence to sway monetary policy makers decisions any time soon. Markets are pricing in next to no chance of a rate cut at next week’s Fed meeting.
Meanwhile, the Bank of Japan’s decision to double borrowing rates to a 17-year high of ‘around 0.5%’ shouldn’t have come as much of a surprise, but it’s been enough to give the Yen a boost and take the wind out of the mighty Dollars sails. The US currency is set to close its worst week for two months with widely touted Trump tariffs failing to materialise during his first week in office.
Strength in the markets is doing little to bring hope to the UK consumer. GfK’s consumer confidence survey for January came in 22 points lower than December levels and a touch lower on an annual basis. Concerns about the outlook for the UK economy and personal finances drove the savings index up points to 30 as respondents looked to put major purchases on hold in favour of squirrelling away some extra cash for a rainy day.
If luxury fashion brand Burberry’s Q3 numbers were anything to go by US consumer demand is the one pocket of strength on the global scene, with comparable store sales up by 4%. This contrasts sharply with a 9% decline in the Asia Pacific region, including a 7% fall in China. More from my colleague Aarin Chiekrie later.
Brent Crude prices have obediently followed President Trump’s calls for lower oil prices and now sit at close to $78 per barrel. However, there are signs of industry resistance building to his mandate to ‘drill baby drill’. Such a move could undermine profitability for the industry and Rystad Energy and Wood Mackenzie are now forecasting that total US oil output in Trump’s second term will rise by less than 1.3mn barrels a day. For now, a ninth consecutive fall in US inventories suggests that supply remains tight meaning that further dips in the price can’t be assured.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“Burberry was holding out for a Christmas miracle, and while total third-quarter revenue still dipped by 3%, recent months have seen a sharp turnaround in performance, hinting at a much-needed comeback. Sales across Asia Pacific remain weak as the region grapples with its own economic woes but performance in the Americas was positive, where strong marketing efforts helped sales bounce 4% higher. Burberry’s now hopeful that its second-half results will broadly offset the £41mn of underlying operating losses suffered in the first half.
The strategy reset seems to be the right move. It aims to return Burberry to its origin, outerwear, to help reignite demand for the famous British brand. Customer response to the group’s ‘It’s always Burberry Weather’ and ‘Wrapped in Burberry’ festive campaigns has been positive, helping the group to largely stem the double-digit revenue declines announced back in November. But there’s still a long way to go, and newly minted CEO Joshua Shulman will have to dust off his trench coat and charge into the fray if he’s to gain ground on the competition. Building back brand desirability requires a lot of investment, even more patience, and even then, there’s no guarantee that potential investors will enjoy the spoils of war.”
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