Retailers Offer Support To FTSE Amid Global Equity Bloodbath

The FTSE was faring better than its European counterparts on Thursday. After falling sharply on the open amid risk off sentiment following Apple’s shock lowering of revenue guidance, the FTSE managed to climb back above 6700 before slipping lower on Wall Street’s open. The FTSE, down just 0.5%, looked relatively solid compared to global indices as Wall Street faced another turbulent session.

Next topped the FTSE leader board, jumping over 5% despite a profit outlook downgrade. Investors have chosen to look on the brighter side of some not quite as dismal as expected results. The profit downgrade being less than investors were expecting, plus sales in the weeks leading into Christmas making up for a stinking November, gave investors reason to cheer. Milder weather rather than a consumer confidence crisis is what hit November sales. Given all the uncertainties surrounding Brexit, the fact that consumers were spending in the led up to Christmas is a huge bonus. This is being reflected in the rising share price of Next and sector peers Marks and Spencer and Primark owner AB Foods. The retail environment remains tough, only the fittest will survive.

Pound in Forgiving Mood as UK Construction Disappoints
The pound moved higher across the session, but that was more of a dollar weakness story than any notable pound strength. The flash crash overnight sent the pound to a 20-month low of $1.2438, sterling then spent the day clawing back those losses even after UK construction data disappointed. UK construction activity fell to a three-month low in December after climbing to a four-month high in the previous month. Construction pmi dropped to 52.8 from 53.4 in November. 

As the risks of a no deal Brexit rise, demand for commercial building projects has declined. Housebuilding has offered some support to the sector as has projects such a Crossrail. The pound shrugged off the disappointing data, with help from a weaker dollar.

Dollar Weakens As US Manufacturing Hits 2 Year Low
The dollar was out of favour amid news that US manufacturing index dropped to its lowest level in 2 years. ISM Manufacturing dropped to 54.1 in December from 59.3 in November. It was well below the 57.7 forecast. The weaker than forecast data adds to the growing unease of the health of the global economy amid the US – Sino trade war. 

The market is not currently pricing in a rate hike from the Fed this year, despite the Fed dot plot indicating that two hikes are planned. This weaker than forecast data is doing nothing to convince traders that two hikes could happen. Attention will now turn to US noon farm payroll figures. Disappointment in tomorrows NFP’s could see the dollar drop further and GBP/USD rally back towards $1.27.