REFRESH PAGE FOR UPDATES

Deutsche Bank concerns spark sell-off

Banking stocks have fallen after a traders sold stock in Deutsche Bank which at one point lost 15% of its value.

Investors were concerned about its exposure to US commercial real estate and its large derivatives book, according to Stuart Graham, an analyst at Autonomous Research. 

The FTSE 100 tumbled to close 94.15 points lower at 7,405.45 amid concerns about the European banking sector. Barclays NatWest and HSBC all fell heavily.

But government leaders have said this is not a repeat of the Credit Suisse crisis. German Chancellor Olaf Scholz said the European banking system is “stable”, despite the widespread markdowns.

After a summit of EU leaders, Mr Scholz said: “It paid off that we had strict rules and regulations in the past years, the banking system is stable in Europe.”

He added: “Deutsche Bank has thoroughly reorganised and modernised its business model and is a very profitable bank.” 

European Central Bank President Christine Lagarde reportedly told European Union leaders that the euro-area banking sector is strong despite the continued market turmoil.

Retail sales rise

Retail sales across the UK picked up markedly, defying expectations of a smaller rise.

The Office for National Statistics (ONS) reported a 1.2% rise in sales volumes in February compared to the previous month. That was above forecasts by economists who predicted only a 0.2% uptick.

It is the largest monthly increase since October 2022, which benefited from the additional bank holiday for the Queen’s state funeral, and returns sales volumes to February 2020, pre-pandemic.

The data helped confirm that the economy is slowly picking up, and performing better than had been expected.

Nicholas Hyett, Investment Analyst at Wealth Club commented: “The UK is finding it’s shopping habit hard to kick it would seem. Retail sales volumes have come in stronger than expected for the second month this year despite the cost of living squeeze. 

“But beneath that headline, there’s clear evidence that shoppers are being careful with their money. Growth in non-food sales was driven by discounters and second hand shops, while the rise in food volumes is attributed to people choosing to eat in and avoid pricey meals out. Shoppers may be more willing to spend, but only when there’s a bargain to be had.

“Longer term, sales volumes remain lower than they were this time last year. With the Bank of England expecting the UK economy to hold up better than previously expected, that provides room for several months more sales growth. Whether shoppers find the confidence to return to the mid-market space though remains to be seen.”

Wetherspoon

Pubs group J D Wetherspoon said sales had grown over the half year and it returned to profit, but it has seen a squeeze on margins.

The group’s operating profit fell to £37.4m against £63.5m pre-pandemic while profit before tax and separately disclosed items came in at £4.6m, well down on the £50.3m in the same period in 2019 but a the £26.1m loss last year.

Like-for-like sales for the six months to 29 January were up 13% compared to the same period last year and up 5% on pre-pandemic levels.

Despite the squeeze on incomes, the company is cautiously optimistic for the year ahead.

The board has not recommended the payment of an interim dividend.

Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, commented: “This is a solid performance from Wetherspoons set against an exceptionally challenging trading backdrop. Like-for-like sales have proved robust and have strengthened in the last seven weeks, despite cost of living pressures on consumers.

“Wetherspoon’s commitment to low prices is keeping customers loyal, as evidenced by the robust like-for-like sales growth. These value credentials are critical, and should mean the group is better placed than many of its peers to weather a downturn in consumer spending.   

“Profitability, however, remains well below pre-pandemic levels. Wetherspoon’s business model is heavily exposed to the rise in labour, energy and food costs. Unfortunately, it doesn’t have the pricing power to fully offset these cost pressures. In the current inflationary environment that means one thing – pressure on margins.

“Overall, while there are reasons for optimism, 2023 is shaping up to be yet another challenging year for Wetherspoons. Higher interest rates and inflation are strangling the economy, and leading to significantly higher costs for the group. Combine this with Wetherspoons low margins and low price strategy, it means the group faces an uphill battle in the current environment.”

Global markets

Interest rates are on the rise everywhere with the Bank of England following similar decisions by the Swiss National Bank and Norway’s Norges Bank on Thursday morning, the US Federal Reserve on Wednesday, and the European Central Bank last week.

The Fed resisted the urge to pause hikes in the face of banking sector turmoil, while the SNB raised rates by a more aggressive 50 basis points. The ECB raised rates by the same amount last week.

Sterling was quoted at $1.2278 early on Friday, down from $1.2325 at the London equities close on Thursday.

Wall Street closed the session higher, with the Dow Jones Industrial Average up 0.2%, the S&P 500 up 0.3%, and the Nasdaq Composite up 1.0%.

Overnight in Tokyo the Nikkei 225 index was down 0.1%. In China, the Shanghai Composite was down 0.7%, while the Hang Seng index in Hong Kong was down 0.8%.