Morning Note: Market news and an update on retailer's Christmas trading.

Market News

Federal Reserve policymakers were eager to adopt a slower pace of easing, minutes from the central bank’s December meeting show. Earlier, Christopher Waller said he expects inflation to continue to cool toward the Fed’s 2% target, offering support for additional rate cuts this year. Yellen weighed in on the recent spike in yields, saying strong economic data suggest that the path of interest rates going forward is going to be “a little bit higher” than expected. She also said the so-called term premium has “begun to normalise.” US Treasuries rose slightly overnight, halting a four-day selloff – the 10-year yield is currently 4.67%. Gold moved up to $2,665 an ounce.

US equities were little changed last night – S&P 500 (-0.2%); Nasdaq (+0.1%) – and the market is closed today for the state funeral of ex-President Carter. In Asia this morning, stocks declined as Trump’s threat of additional trade tariffs unsettled investors: Nikkei 225 (-0.9%); Hang Seng (-0.1%); Shanghai Composite (-0.6%). CPI inflation in China weakened to 0.1% in December in a setback for the government’s efforts to drive up demand.

The FTSE 100 is currently 0.4% higher at 8,275. Companies trading ex-dividend this morning include Ashtead (0.59%), Experian (0.45%), and Sage (1.03%).

UK staff hiring fell in December at its fastest pace in 16 months as firms brace for Labour’s tax hikes, according to an REC and KPMG report closely watched by the Bank of England. Gilt yields remain elevated – the 10-year is above 4.8% – meaning Chancellor Reeves may have to consider spending cuts. Sterling weakened to its lowest level against the dollar since November 2023 – $1.2288 and €1.1925.

Source: Bloomberg

Company News

Christmas is a key trading period for the retail sector and can make or break a company’s annual profitability. Soon after the New Year, each company provides an update on how well the season went. This morning, we heard from Tesco and Marks & Spencer, both of which highlighted that trading was better than market expectations. However, against a backdrop of turmoil in the UK bond and currency markets, both stocks are down in early trading.

In the 13 weeks to 28 December, Marks & Spencer generated a resilient performance against a challenging external environment. Group revenue rose by 5.6% to £4,064m.

M&S Food revenue was £2,581m, up 8.9% in like-for-like (LFL) terms, ahead of the market forecast of 7.1%. Growth was driven by ongoing market share gains as the group delivered its biggest ever volumes, particularly in smaller stores. Sales of new Christmas products grew 14%.

Clothing, Home, and Beauty rose by 1.9% in LFL terms to £1,305m. The group took market share in a declining market, with womenswear and menswear performing well. Online grew strongly (+11.7%) and new and renewed stores continued to outperform expectations, but store sales overall were down 1.5% in part due to the weather. The company continues to ‘right size’ its store estate. 

The group’s international business generated revenue of £178m, down 2.8%, largely driven by continued challenging market conditions in India and the phasing of franchise shipments. Reset actions are underway and management remain confident in the growth opportunity over the medium term.

Looking forward, the company highlights the outlook for economic growth, inflation, and interest rates is uncertain and the business faces higher costs from well-documented increases in taxation. However, the group remains confident of making further progress in the remainder of the year.

In the 19 weeks to 4 January, retail sales at Tesco grew by 3.3% to £23.9bn. In LFL terms, growth was 3.1%. The company delivered its biggest ever Christmas with continued market share growth – LFL growth in the six weeks to 4 January was 3.8%.

In the UK, LFL sales grew by 3.9%, with a slight acceleration over Christmas to 4.1%. The group’s value market share rose by 78 basis points to 28.5%, marking 19 consecutive periods of share gains. Food sales grew by 4.7%, primarily driven by volume growth across the period, with a particularly strong contribution from fresh food. Non-food sales (excluding toys) were up 4.0%, with growth in both home and clothing. Online sales rose by 10.8%.

In Ireland, LFL sales grew by 4.4%, with a slight acceleration over Christmas to 4.8%, driven by market share gains. Booker fell by 1.3%, with strength in core catering (+2.8%) and retail (+1.3%) offset by tobacco market decline and Best Food Logistics.

Outside of the UK, Central Europe generated LFL sales growth of 3.5%, with Christmas up 4.7%. Food and non-food rose by 3.7% and 1.8% respectively.  

Looking forward, the company continues to expect to deliver adjusted operating profit for the 2024/25 financial year of around £2.9bn, in line with the upgraded guidance management gave at the time of its interim results.

Source: Bloomberg