WeeklyWatch – Strong retail sales don’t amount to buoyant UK markets

23 November 2021

Stock Take

The detail’s in the retail

The FTSE 100 struggled over the past week, despite strong retail sales in the UK.

UK retail sales volumes had an uplift of 0.8% in October compared to September. October sales likewise rose by 5.8% compared to the pre-pandemic February 2020 levels. Had it not been for falling vehicle fuel sales, the month-on-month increase would have been even higher. The Office for National Statistics (ONS) highlighted that this did, in fact, represent a normalisation of fuel sales, after they surged in September as fears of a fuel shortage gave way to panic-buying.

Retail sales are generally a sign of a stronger market, yet they also led to some concerns that the Bank of England (BoE) would be encouraged to increase interest rates in the near future.

Adam Hayes, Assistant Editor at Capital Economics, remarked:

“Although some members of the Bank of England’s MPC may be concerned that the rise in inflation will take some momentum out of the economy by reducing real incomes, today’s release may, at the margin, ease those concerns and make them more comfortable with the idea of raising interest rates.”

These fears were aggravated by high inflation figures released on Wednesday. The ONS reported that CPI inflation reached 4.2% in October – up from 3.1% in September – and the fastest rate in almost a decade. Higher fuel costs and energy prices were the main drivers behind the increase; however, the rising cost of second-hand cars and dining out were also noted. The BoE continues to state that high inflation should be transitory, yet Andrew Bailey has professed that inflation could climb as high as 5% before returning closer to the Bank’s 2% target.

EU lows

European markets fell slightly over the course of the week, as lacklustre market performance on Thursday and Friday eradicated most of the gains in the STOXX Europe 600 made at the beginning of the week – these falls were from a record high.

In other EU news, a new wave of coronavirus is at play, with several countries taking restrictive measures to hinder its spread. Austria announced a lockdown on the Monday, which was then extended to a full lockdown by Friday – for no more than 20 days. The country also declared plans to make COVID-19 vaccinations a legal requirement as of 1 February 2022. The Austrian Traded Index dropped over 2% shortly after the news of the full lockdown on Friday, meaning it closed the week down overall.

Elsewhere, on Monday Royal Dutch Shell announced that it’s set to end its dual-share structure, split between the Netherlands and the UK, and relocate its tax base to the UK. This will see Shell’s corporate structure simplified – something it said would reduce risk for shareholders and allow for a boost in distributions by way of share buybacks. Several commentators also concluded that the Dutch dividend tax is a reason for Shell to move to the UK. Such a move will increase pressure on Dutch politicians keen to retain multinational companies in the Netherlands to contemplate the future of its dividend tax, which would likely be a plus for income investors with Dutch holdings.

US tech

American markets had a more successful week compared to their European equivalents. Both the S&P 500 and the Nasdaq grew over the week, in part thanks to the healthy performance of the tech sector.

With the S&P 500 currently sitting at around 4,700, Morgan Stanley forewarned last week that it anticipated it would fall to 4,400 by the end of 2022 – mainly because some of the tech stocks, which have soared in value during the pandemic, struggle to keep a grip on these high share prices. Of note is that a number of other banks, RBC and Goldman Sachs included, expect the S&P 500 to grow next year, albeit at a much slower rate than it has this year.

Emerging news

Emerging markets had a difficult end to the week, with Turkey slashing its interest rates on Wednesday, in spite of rising global inflation. This move saw the price of the Turkish lira go down significantly, and there have since been several reports predicting increasingly higher inflation, not to mention a potential currency crisis unless interest rates increase.

In India, Paytm went through India’s biggest ever IPO; however, its share price then fell by more than a quarter in its first day of trading.

Wealth Check 

It’s certainly never too late – nor too early – to start saving for your dream retirement, and it’s also helpful to think about saving a percentage of your earnings at certain ages. A useful starting point is to halve your age and aim to save that percentage of your salary each year.

An alternative approach is to plan to save multiples of your earnings by a certain age. For instance, you could aim to have three times your earnings saved by the time you’re in your 30s, six times by your 50s, and eight times by your 60s.

It’s also worth noting your different options when it comes to achieving your goals in retirement. Pensions are undoubtedly still the dominant source of retirement income, yet tax-efficient investments such as Stocks & Shares ISAs and income from other sources, such as property, also offer options.

Furthermore, understanding how to use your defined contribution pension pot – and defined benefit scheme, if you have one – to maximise income is vital to ensure you get to live the life you want during your later years.

Tony Clark, Senior Propositions Manager at St. James’s Place, advises those beginning to think about retirement to discuss to with a professional adviser in order to work out your options.

“It depends on how much you’ve saved, what income you have coming to you and when, plus when you need and want to give up work – there are a whole range of factors. Sit with your adviser, work out what your objectives are going to be over the next few years and into later life, and see when certain incomes are going to switch on and off.”

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

The Last Word

“A big part of the challenge is mental. There’s physical parts of it that are going to hurt and be horrible, but I think mentally every hour some of it is going to be torturous.”

– Former rugby player Kevin Sinfield begins his attempt to run 101 miles in 24 hours to raise money for charity.

The information contained is correct as at the date of the article.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2020. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

© S&P Dow Jones LLC 2021; all rights reserved.