Today's markets: Retail sales shock sends shares up

It’s only been a day since I suggested the UK stock market was less affected by the macro picture and rate cut obsession, and yet today FTSE 100 buyers have their version of a ‘bad news is good news’ play. The London index hit a record high this morning rising 1.2 per cent. No company or sector in particular is driving this, although Smiths Group’s activist campaign has seen its shares rise 5 per cent. So what is then? Well, retail sales growth came in below forecast, of course.

There is some logic. The retail news is bitterly disappointing, although not wholly unexpected if you’ve been paying attention to what the retailers have been saying this month about how bad their Christmas periods have been. Sales fell 0.3 per cent in December month-on-month and rose 3.6 per cent over 12 months, but this figure was well below the 4.9 per cent consensus. Some of this is down to the timing of Black Friday but even then, it’s been a poor period for retailers in what is known as their ‘golden quarter’, and we’ve touched on that briefly when the British Retail Consortium gave its bleak outlook for the year. And all of this means that a February rate cut from the Bank of England is now nailed on. It’s only been a few weeks since it was inconceivable for the Bank to cut rates given the inflation outlook. A January of rising bond yields, falling inflation, and zero economic growth has turned the tables though.

A falling pound has also helped the FTSE this morning, so it isn’t all rate news, with dollar-focused companies also lining up the risers tables, including Ashtead, Entain and miners, although the news of a Rio-Glencore tie-up is also affecting the sector this morning, with the latter’s shares up 3 per cent. Only five companies are in the red this morning. Europe is also doing well with shares in Paris and Frankfurt rising 1 per cent, while New York fell marginally into the red overnight, although futures show this will turn itself around when it opens up later today, and end the week around 2 per cent higher, despite the to-and-fro on rate cuts from the Federal Reserve this week.

It’s been quite hectic this week given the bond yield movements, next week brings less data to muddle traders’ minds, although the UK unemployment figures will be helpful to judge the impact of the Budget business tax rises on businesses. Oh yes, of course, and then there’s the small matter of a new president being inaugurated. Much to look forward to.

By Taha Lokhandwala