Friday was another rough day at the office for European markets. A strong Christmas performance from Tesco (L:TSCO) was not been enough to counter a wave of fear striking the FTSE 100 as oil prices slumped and travel stocks were sold off following terrorist attacks in Jakarta. Adding to concerns, the offshore Chinese yuan fell despite the PBOC setting a higher fix for the onshore rate as traders bet on future depreciation.
There had been signs that the recovery was petering out in the past day or so but equities finally succumbed when Brent crude prices hit a 12-year low early Thursday.
Brent crude oil dipped below $30 p/b for the first time since 2004 after poorly-received US inventories data added to jitters following reports that suggested a quicker than expected lifting of Iranian sanctions. Iran has been vocal about its plans to open up the floodgates for its oil exports once the sanctions are lifted, so much so that OPEC could not reach an agreement on output quotas at its last meeting.
The British pound was seeing renewed pressure ahead of the Bank of England interest rate decision. The BOE’s lone hawk Ian McCafferty may give up the ghost and change his vote to keep rates on hold given that the oil price drop and slowdown in wage growth has soured outlook for inflation in the UK.
Tesco was topping the UK benchmark, rising over 5% on Thursday after the supermarket saw a surprise rise in sales over Christmas. The 1.3% like-for-like sales growth in the six week until January 9 is a great result considering the city was eying more like a 2.5% drop. A -1.5% sales decline over the third quarter ending in November also beat expectations but serves to illustrate the difficult competitive environment the supermarket finds itself in. As the UK’s biggest grocer, Tesco has the most to lose amongst rising competition from discounters Aldi and Lidl, Amazon (O:AMZN) food delivery and the rest of the Big Four fighting back.
Shares of Home Retail Group (L:HOME) jumped over 2.5%, adding to rapid gains over the past few weeks after the company announced it is in advanced talks to sell Homebase to Australian DIY chain Westfarmers for £340m. Sainsbury (L:SBRY) has said it is planning a second a bid for Home Retail Group but since its Argos and not Homebase the supermarket is after, management might decide to wait for the Westfarmers transaction to go through. Home Retail’s Christmas sales performance was divided across the two retailers. Argos saw same-store sales fall 2.2pc over the 18 weeks to 2 January while at Homebase, like-for-like sales rose 5%.
US stocks look set for a firmer start, rebounding from Wednesday’s sell-off which was driven by losses at prominent tech companies including Twitter (N:TWTR) and Netflix (O:NFLX).
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