Post Holiday Analysis

Bets in the City / Nick Smith / 05 January 2009 / Leave a comment

Daily View - January 5th 2009

Despite the bank holidays and festive period over the last two weeks the FTSE 100 has confounded the sceptics and put on 8% since Christmas Eve. As people return to their offices and come to terms with what will almost certainly be a tough year ahead realism will most likely hit home and the belt tightening will really commence. The scenes of the Christmas shopping sales did come as a surprise as the bun fights took place with shoppers bustling for their bargains but alarmingly yesterday Oxford Street was a desert when usually it is still relatively busy. This was the first time I had seen tumble weeds blowing down a major high street and doesn't bode well. If 2008 hadn't already been a year of reckoning for many retailers, then 2009 certainly will be.

This week also sees trading statements from a bundle of retailers with Tuesday providing news from Debenhams, Jessops and Next. Then on Wednesday we see M&S give their trading statement. These updates will reveal the extent of the carnage over the Christmas period and the gloom expected in the months to come. Sales are due to fall across the board with M&S being the worst impacted and after struggling to shift old stock in the run up to Christmas with big discounts they may end up having to give some of their stuff away.

Unfortunately for retailers everything bar interest rates is going against them and not even this is proving enough to kick start the consumer. With confidence in tatters people are seriously starting to think about how much they spend and the way they spend. Since M&S's food range is generally at the upper end of the market they are going to suffer, having already seen sizeable declines in this area. The availability of credit is also a major disadvantage to the sector as people who used to be able to purchase big ticket items on finance deals can't get the new fridge or TV unless they pretty much purchase outright now.

Wednesday also sees updates from baker Greggs and house builder Persimmon and following the recent mortgage approval data showing another record low the woes for the housing market look set to continue. Whilst house prices saw big falls throughout 2008 the trend looks set to continue in 2009 and we will not see prices stabilise until they come back to the levels of affordability for first time buyers, but on top of this we need to see mortgage lenders willing to give out attractive deals and entice buyers back in. Until then any buyers out their will continue to offer around 10-15% below asking prices.

Thursday is more trading updates from the likes of Sainsbury's William Hill, Man Group and recruiters Michael Page and Hays. The focus of this day will be the Bank of England's rate decision which is due to cut from the current 2.00% to 1.50%. Some believe there could be a full percentage point cut to 1.00% which is almost academic really because this is most unlikely to be passed on through and have a material effect for a long time. Whilst the banks themselves have been smashed to pieces by their write downs and huge bad debts, they now can't charge for lending their money and whilst these rate cuts from the Bank of England are designed to stimulate the economy and encourage lending they're almost having the reverse effect as banks have to lend their money for next to nothing, still with the risk that they could not see it again.

Friday's highlight is the US's non farm payroll data and is the biggest piece of data to commence 2009. Another big decline of 500k is expected and the overall unemployment rate due to jump to 7%.

Sterling is staging a bit of a recovery against the euro having clawed back some 4% since the record low it hit of 0.9800 a week ago. We're now back at 0.9415 with many clients seeing this as a buying opportunity in the belief that the overall trend is still sterling negative and we'll see parity between the sterling and euro. Sometimes it takes a little longer for markets to reach their "destiny" as we saw with gold hitting $1000 and sterling/dollar hitting $2.0000 but more often than not eventually they get there.