On a morning where RBS releases a note that cries ‘sell everything’ and warns of a global deflationary crisis it’s a wonder equity markets are holding up at all today.
US markets ended up mostly higher overnight following a late afternoon bounce while Asian markets were mostly lower with the Nikkei underperforming after Monday’s holiday.
As WTI establishes itself, akin to Brent crude oil, with a $30 handle the bearish sentiment surrounding the commodity has intensified. Already down 20% this year so far, the strong dollar, supply glut and weakening global demand are all drivers and no real change is expected to these in the near term. Morgan Stanley has thrown its hat into the ring as it suggests oil prices could go as low as $10/bbl. Short positions on oil prices are now at a record high but it’s times like these that a surprise squeeze higher can occur.
Rumours that an emergency OPEC meeting is in the offing has done little to steady the price. Clearly nobody is expecting to see any OPEC members risk loss of market share by altering output in light of these declines.
The FTSE treads water with the usual suspects in the red as falling commodity prices keep investors wary. Copper trades below $2/lb, iron ore is down by another 4.73%. Thus we see UK miners languish again at the bottom of the index with little signs of recovery.
The main bright spot is amongst the UK retailers. The Kantar survey on UK supermarkets is out and indicated that UK retail is in a fairly healthy state. It showed Sainsbury (+3.16%) to be the best performer. Its sales rose 0.8% in the 12 weeks to Jan 3 and saw its market share edge up by 0.1%
Morrison (+9.72%) the 4th biggest supermarket chain saw its sales rise 0.2% over the Christmas trading period. Morrison has told investors to expect £60m of restructuring costs – at the top of a previously guided range of £50m-£60m. The new chief exec appears to be making a difference since he began his tenure in March of last year.
Tesco (+6.6%) is a high riser on the day, adding to its recent gains and taking the top spot on the index despite its sales being down 2% in the 12 weeks to January and a decrease in its market share to 27.3% from 28%.
It would seem that the more frugal consumer habits of yesteryear borne out of the financial crisis are here to stay as discounters Aldi and Lidl saw sales growth of 13.3% and 18.5% respectively.
With some brokers looking for value amongst the more put-upon stocks in the past few weeks, we have a host of upgrades and downgrades both aiding and constraining the UK benchmark.
Jefferies International has upgraded Berkeley Group Holdings (+2.8%) to Buy with a price target of 4650.00p
Barratt Developments (+2.19%) also upgraded to Buy with a price target of 807.00p
BHP Billiton (-3.38%): Barclays has cut its price target on the stock and HSBC expects it to cut its dividend by half at the next result release. HSBC also speculates that Rio Tinto (-1.83%) will need to cut later in the year in order to reduce capex and protect its balance sheet.
As copper prices slide, Glencore’s debt load and cost to insure it is now at a 6 year high. The stock is the main laggard today and has fallen 3.65% in early trade.
Sports Direct (-3.42%)The fall in the stock price continues for the 7th consecutive session. The share price is now 52% below its highs of early August. Last week’s profit warning and reputational damage following an investigation into its treatment of staff is not encouraging and the likelihood of the company falling out of the FTSE 100 at the next reshuffle is beginning to look very realistic.