A rapid rise in retail sales in October helped UK stocks edge higher on Thursday, with the FTSE 100 holding above 6750 despite poorly-received results from Royal Mail. There was a more mixed performance in European shares as the price of oil rose and bond yields ticked lower.
The ONS has reported a 1.9% monthly rise in retail sales (2% excl. fuel) during October, taking the annual rise to 7.4%, the biggest rise since April 2002. The data saw the pound rise against the dollar but was down slightly against the euro. The pound has gained as much as 4.5% against the euro this month and is starting to look a little exhausted.
Shares of Royal Mail shed over 6% of their value on Thursday after reporting falling operating profits. Last time Royal Mail reported results its shares hit 52-week highs, but have slipped since Brexit. Royal Mail’s European parcel delivery business GLS was again a big driver of revenue growth. The positive FX translation of European earnings with a weaker pound also supports profitability.
Parcel volume and revenue growth continued. Royal Mail needs to continue its inroads into UK parcel delivery and offset declining letter deliveries, but faces intense competition in doing so. As an example, Parcel2Go recently surpassed Royal Mail with the cheapest 2 kg deliveries. Royal Mail raised its cost savings target to an average of £600m per year by 2018, from £500m. Cost cutting and productivity gains help protect margins in UK letters. Tough wage and pension negotiations with its unionised workforce coupled with the need for capital expenditure may curtail how far cost-cutting can go.
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US markets look set to open higher ahead of results from Walmart, inflation data and a speech from Fed chair Janet Yellen. The world’s biggest retailer and Asda-owner Walmart has been one of the beneficiaries of rekindled hopes of a Donald Trump-induced spending boom. Shares remain below the 52-week highs reached in August. Concern about online competition from the likes of Amazon and the impact of higher wages has tempered expectations in the lead up to Black Friday.
USA pre-opening levels
S&P 500: 1 point higher at 2,177
Dow Jones: 8 points higher at 18,876
Nasdaq 100: 6 points higher at 4,798
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