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It’s been a very mixed Christmas on the high street – but some very obvious trends are emerging.
Just as Marks & Spencer finally heralded its recovery (though canny Stuart Rose was careful to hedge investors’ bets on prospects for next year), another specialist retailer was gearing up for the latest profit warning of the season – Moss Bros.
The menswear chain saw sales fall 1.4% in the 49 weeks to January 6th. The group blamed the weather, but it seems more likely that the supermarkets are once again making their presence felt in a once-specialised market.
But another interesting detail about the Christmas season was less remarked upon. With all the competition and nerves in the lead up to Christmas, you would have thought retailers would have been slashing their prices – but apparently not…
The British Retail Consortium reported that shop prices in December rose 2.3% on last year – that’s the highest increase since March 2004, and the sixth month in a row of rising prices. The move was partly down to a sharp rise in food prices, but there was also less discounting in stores than last year.
The news represents just another worry for the Bank of England, which is set to announce its latest decision on interest rates this month. It’s highly unlikely to change rates this month, but most expect a hike to 5.25% next month.
Meanwhile, Nationwide reports that UK consumer confidence fell to its lowest in the survey’s two-year history in December, as the threat of higher interest rates set nerves jangling.
And it seems that as the month of January wears on, and the Christmas euphoria gets left behind, that more and more people are waking up to the fact that there are just as many things to worry about in 2007 as there were in 2006. It’s just that – as the World Economic Forum reports – the risks have now got worse.
The WEF reckons there are 23 global risks – and in the past year, the condition of none has improved, and in fact, 15 have become more pressing. It believes there is now a 10%-20% chance of the global property and debt bubble exploding. It puts the chances of a dollar slide at 5%-10% (which seems rather optimistic to us). Other worries include a hard landing in China, a spike in oil prices, and all the other fears that occasionally hit the headlines but then get forgotten about, like a flu pandemic.
One of those worries – climate change – seems to be currently keeping a lid on another – oil prices. The apparent failure of the northern hemisphere winter to arrive has helped to hammer the oil price. The price of a barrel of Brent Crude now at its lowest since mid-2005. Many analysts have flipped over from expecting $100 a barrel to now tipping sub-$50 oil.
So is the oil price headed back to more comfortable levels for good now? We doubt it. It’s another very interesting lesson in market turning points. For most of early last year, the majority of pundits were still expecting oil to fall back. But as it kept climbing, peaking at over $78 a barrel in August, even the biggest oil bears started to backtrack. And of course, when we got a consensus that oil would never fall back below $70 a barrel, that’s precisely what happened – it started to fall.
But bull markets don’t rise in straight lines. They go up sharply, get ahead of themselves, have a correction, then start rising again. Don’t just take my word for it. Robin Griffiths of Rathbone Brothers tells The Telegraph: ‘All commodities are in an uptrend that began in 2000 and will run for at least another decade. But within that, there’s a four-year cycle and that can lead to nasty corrections that tend to last about nine months.’ He reckons oil will fall as far as around $47.70 a barrel which ‘will be a great buying opportunity. This feels frightening, but it’s just a normal retracement.’
Of course, whether it feels frightening or not depends on your relative position in the oil market – it might be scary for oil investors, but few people will object to falling petrol bills. However, we reckon Griffiths is right – the oil price is unlikely to stay low for the rest of this year. That might be another worry for the global economy, but anyone getting exposure to oil at or just below current prices is unlikely to go far wrong.
Turning to the stock markets…
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In London, shares closed lower yesterday, but well off earlier lows. The FTSE 100 endend the day 35 points weaker, at 6,160. Supermarket chain Wm Morrison was the day’s best performer, its share price rising over 6% on reports of strong Christmas trading. For a full market report, see: London market close
Across the Channel, shares tracked Wall Street to end the day lower. The CAC-40 closed at 5,501 in Paris – a 31-point fall – whilst the DAX-30 closed 47 points lower, at 6,566, in Frankfurt.
On Wall Street, stocks recovered from a weak start to end the day higher as investors focussed on the technology sector. The Dow Jones gained 25 points to end the day at 12,442. The tech-heavy Nasdaq ended the day 15 points higher, at 2,459, and the S&P 500 was two points higher, at 1,414.
In Asia, the Nikkei fell 104 points as fears that an interest rate rise was imminent hit investor sentiment. The index closed at 16,838 today.
The price of crude oil had fallen by over 1% this morning to $53.34 a barrel. In London, Brent spot had slipped down to $52.48.
Spot gold last traded at $610.90/oz this morning, little changed from its price in New York late last night. Silver had risen to $12.34/oz.
And in London this morning, chemist Alliance Boots announced sales growth of 1.5% in the last three months of 2006, below analysts’ forecasts. The company’s shares had fallen by as much as 1.1% this morning. In other news, the Bank of England will announce its latest decision on interest rates at midday today.
And our two recommended articles for today…
Why would anyone want to buy Sterling?
– Even Wall Street and the City agree that the Pound Sterling must tumble. So why have central bankers been buying all they can get? To find out why the Pound is set to fall hard, read: Why would anyone want to buy Sterling?
What commodity price action tells us about the global economy
– The future health of global economies can sometimes be assessed by following the price action of commodities. So what do copper, gold and oil suggest now? Here is how John Robson and Andrew Selsby of RH Asset Management are reading recent price action: What current commodity price action tells us