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Retail sales fall as inflation bites | Wall Street falls on rates alert


9.30pm: Wall Street plummets

Stocks extended an end-of-week decline on Friday, largely blamed on central banks acting aggressively to curb inflation by raising interest rates, which hurt corporate earnings.

The Dow Jones Industrial Average plummeted 981 points, or 2.8%. It was its worst one-day drop since October 2020.

The S&P 500 tumbled 2.7% and the tech-heavy Nasdaq 2.6%.

5pm: London closes sharply lower

The FTSE 100 plunged 106.27 points (1.39%) to close at 7,521.68 following weak March UK retail sales data, and as Wall Street stocks fell amid worries over the pace of interest rate hikes.

UK retail sales fell more steeply than expected last month, down 1.4% on February as the rising cost of living hit consumer spending, though they were still 2.2% above pre-Covid levels, according to the Office for National Statistics.

Online sales were hit particularly hard as people tightened their belts. Fuel sales also fell as prices soared.

Economists had expected a 0.3% decline in sales month-on-month while the ONS also downwardly revised February’s fall in retail sales.

Michael Hewson, chief market analyst at CMC Markets UK commented: “”Today’s retail sales numbers are a wake-up call, if any were needed, that consumer spending could be weak for some time to come, as households prioritise food and energy over non-essential spending, with this week’s fall in Netflix subscriber numbers revealing an interesting trend that is likely to get worse.

“Quite simply, food and energy are people’s priorities now, not watching ‘Stranger Things’.”

Euan Murray, relationship director and retail sector specialist at Barclays Corporate Banking, Scotland said: “Consumers are prioritising hospitality and leisure experiences as they enjoy longer, sunnier days and retail has seen a transference of its spend to this sector as consumers, with their pockets increasingly squeezed by inflationary pressures, seem to be choosing to spend on one rather than the other for now. 

“On a more positive note for the sector, retailers are reporting a continuing return to pre-pandemic buying behaviours in both volume and value terms, with increased footfall on the high street and a decrease in online sales, including groceries.

“Many retailers have described shoppers as now ‘buying with intent’ as their investment in improving the in-store experience is paying dividends with customers setting out for high streets with a purpose, and one which the sector certainly hopes will continue.”

Russ Mould, investment director at AJ Bell says the stock market has been pricing in the rise in energy bills and the cutback in consumer spending for some time.

He says this is reflected by the FTSE 350 retail sector having declined by 22% in value year to date.

“Only two FTSE 350 retailers are sitting on a higher share price versus the start of January – that’s Vivo Energy which is in the process of being taken over and the other is WH Smith which is enjoying a recovery in travel activity and has a surprisingly resilient high street operation.

“The share price movements tell you what the market thinks about the consumer spending outlook. It’s easy to cut back on items like greetings cards and clothes, as evidenced by big declines in the shares of Moonpig and Marks & Spencer.

“The home improvement revival seen throughout the pandemic is at danger of losing momentum, with B&Q owner Kingfisher down by a fifth and homewares sellers Next and Dunelm also falling a lot. We all stocked up on laptops and new TVs during lockdown, so Currys might find it harder in the coming months to keep growing sales.

“But the one company that stands out from the crowd is B&M European Value which is down nearly 18% year to date. One might have thought cash-strapped consumers looking to save money would trade down to cheaper items which would benefit value retailer B&M, but the stock market clearly disagrees.

“So, is chief executive Simon Arora getting out before everything turns ugly? News that he will leave the business in 12 months’ time is perhaps not a complete surprise given his family investment vehicle SSA sold £234 million worth of shares in B&M three months ago. That was a signal that Arora was thinking about the future and one that perhaps was less hands-on than his current role.

“He has run the business for the past 17 years and made it one of the biggest modern success stories in UK retail. The 5% share price decline on news of his forthcoming departure goes to show that the market doesn’t want him to go, although one must also factor in the latest retail sales figures as weighing further on the share price.

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“The ONS’ retail sales data is a wake-up call that life is going to be tough for shops – virtual or physical – in the coming months. Once those vastly increased energy bills hit the doormat and households take time to reassess their financial situation, there is every chance that retail sales could get even worse. Big ticket items look particularly vulnerable, including sofas and airline tickets.

“Pubs will be also watching the trends closely as while beer drinkers may be less willing to trade down to cheaper products, there is still the question of getting them through the door in the first place.

“More people returning to working from the office theoretically increases the chances of pubs enjoying a tick-up in sales thanks to people socialising once their shift is over. But that post-work pint may have to become a less frequent treat if inflation keeps ticking up.

“The gloomy outlook for UK retail caps off a frustrating post-Easter four-day session for equities.”

Bank of England governor Andrew Bailey, pictured, yesterday said it is walking a “very tight line” between controlling inflation and tipping the UK into a recession.

He said that raising rates too quickly to keep a lid on the cost of living could put Britain’s economic recovery into reverse.

Speaking at the Peterson Institute for International Economics in Washington, Mr Bailey said: “We are in a period of unprecedentedly large shocks.

“We’ve had shock after shock after shock – we’ve come out of the Covid period and now we’re faced with the appalling things that Russia is doing in Ukraine.

“We are walking a very tight line between tackling inflation, and the output effects of the real income shock and the risk that it could create a recession and push us too far down in terms of inflation.”

US stocks rose earlier in the day on the back of a batch of strong quarterly earnings reports, but turned negative in the afternoon after Federal Reserve chair Jerome Powell hinted at aggressive rate hikes starting next month, adding: “I would say 50 basis points will be on the table for the May meeting.

“It is appropriate in my view to be moving a little more quickly” with raising interest rates.”

His comments came during a panel discussion among central bankers hosted by the International Monetary Fund.

Shell and BP in China link

Chinese state energy companies are said to be interested in acquiring assets in Russia from Shell and BP. Both have committed to withdrawing from Russia following its invasion of Ukraine.

Shell said in February that it would exit its joint ventures with Gazprom, the Kremlin-backed gas group, including the 27.5% stake in the giant Sakhalin-2 liquefied natural gas project in Russia’s far east. It is in early stage talks with CNOOC, CNPC and Sinopec, according to Bloomberg.

Shell’s assets were together valued at $3 billion. It later said it would withdraw from Russia altogether after it emerged that it was continuing to purchase oil. Earlier this month it said it expected impairments related to its exit from Russia of up to $5 billion.

China is also a potential buyer for BP’s 20% stake in Rosneft, the Russian state oil group, with the potential for an asset swap as CNOOC looks to exit the North Sea.

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