After finishing 2023 on a strong note, and then seeing a slow start to the first trading week of 2024 the FTSE100 has managed to post its first positive day this year, with the main gains being driven by a resilient performance from defensives as well as the energy sector.
Europe
The main story on the UK blue chip index today has been a tale of two retailers, with Next shares pushing up to new record highs, after upgrading its profits guidance for the 5th time in the last 12 months.
JD Sports on the other hand has seen its shares plunge completely wiping out the 31% gain it saw in 2023 with the shares sliding to 13-month lows after warning that the milder weather in the last quarter meant that organic revenue growth would be weaker than expected at 6%.
JD Sports also said that its expectations for profits would be lower at between £915m and £935m down from just above £1bn previously, with margins expected to be lower as well, with the markets delivering an utterly brutal verdict on today’s downgrade.
Despite today’s gloom around the wider retail sector with JD Sports losing all its 2023 gains and Frasers Group also on the slide in sympathy, along with Adidas in Germany, and Nike in the US, Next has stood out.
Last year Next upgraded its sales and profits guidance on four separate occasions, and back in November announced a 4% increase in Q3 full price sales as well as raising its profit before tax guidance to £885m from £875m, while also upgrading its full year sales guidance to an increase of 3.1%.
Today’s latest trading update has seen the retailer repeat this trick, pushing the shares up above its previous record highs back in 2021 after reporting a 5.7% increase in full price sales for the 9 weeks to 30th December, a sizeable improvement of £38m on its guidance figure of 2%. Consequently, Next upgraded its profit forecast again, this time to £905m, a 4% increase on the same period a year ago, with full year sales also expected to rise by 4% as well.
Given the outsized market reaction seen from today’s profits warning from JD Sports the next few days are likely to be a key test for other UK retailers in the coming days with a particular focus on the likes of M&S who saw gains of 120% in 2023, as well as Primark owner Associated British Foods which saw gains of 50% and B&M European Retail whose shares finished 2023 36% higher, and who report next week, along with M&S.
We also shouldn’t forget that next week we will also get to hear from the likes of Tesco and Sainsbury to see how they performed over the Christmas trading period.
Currencies
Better than expected economic numbers from the euro area today has helped to underpin the euro today ahead of tomorrow’s key inflation numbers for December. Today’s Germany inflation numbers saw inflation in Europe’s biggest economy jump to 3.8% from 2.3% in November, prompting a modest reduction in rate cut bets for the early part of this year.
The pound has also held up well after services sector activity in December saw a bigger than expected jump to 53.4 from 50.9 in November, and the best number since the end of Q2 last year. Mortgage approvals data for November also picked up as did consumer credit which would suggest that despite the wider gloom around the UK economy, consumer confidence is improving as inflationary pressures continue to slow. On the flip side, this resilience could make the Bank of England a little more reluctant to cut rates as quickly as the market is currently pricing.
The US dollar is also continuing to claw back ground after today’s ADP payrolls report for December which saw 164k jobs added, up from 101k in November, while weekly jobless claims slow to 202k from 220k and close to a 3-month low, pushing US yields higher, and undermining market expectations of a the prospect of an early US rate cut.
Volatility
Cryptocurrencies were thrust back into the spotlight on Wednesday after some very heavy selling was seen. Bitcoin unwound all of its gains from the start of the week after a rumour that the SEC was set to push back again on ETF approvals unsettled the market. This hasn’t however been substantiated and prices rebounded off the lows as a result. One day vol on Bitcoin printed 91.87% against 44.73% for the month, whilst price action was even more exaggerated on the likes of Altcoin Solana where vol came in at 220.33% on the day and 115.93% on the month.
Yesterday’s pause in gains for the Swiss Franc helped lend some support to Zurich listed equities, with the SMI Index advancing around 1.5% in early trade. The upside however proved to be unsustainable, with the Franc resuming its gains and the equity index closing the session little changed. One day vol on the SMI stood at 19.96% against 12.06% for the month. That brief bout of profit taking off recent gains for the Swiss Franc served to drive interest in the USD/CHF trade, too.
The pair remains close to those multi year lows but one day vol advanced to 11.2% against 9.38% for the month. And natural gas prices remain in focus as revised weather forecasts plus falling outputs combined to push the contract back to levels not seen since late November. Some short covering is also reported as being observed, with one day vol now at 68.55% against 58.79% on the month.
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