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UK stock market commentary (January 10, 2013): More woe for the UK high street

Another retailer succumbs to the dire trading environment on the high street as the Christmas of 2012 claims another major high street brand in the form of Jessops the digital camera specialist. Whilst the FTSE 100 hits its highest level since May 2008, this week has been one to forget for most retailers with even many clothing and grocery stores suffering from poor trading in the past few weeks. It once again shows the disconnection between the broader UK economy and the UK stock market which is forging ahead on continued optimism that the global economy will pick up this year with all the support it is getting from central banks.

There’s no question that this recession/recovery, call it what you will, has hit the retailer sector hard as consumers suffer from declining disposable income and they also continue to deleverage. All the supermarkets that have given their trading update so far this week have warned about the outlook for the consumer which continues to look rather bleak as unemployment is still high and wage inflation remains stagnant.

Bellwether M&S has also suffered a bad trading period in the past few weeks with once again their food being the only bright spot. I have to say that the last time I went to M&S, only yesterday, the shop was rather empty and all I bought was something to eat that evening. Much of the clothing didn’t excite me and was expensive when compared to other shops in the City that are selling the same, if not better items.

As mentioned the high street woe isn’t affecting the markets which continue to head higher. Across the pond in the US the Dow enjoyed a lift from the Alcoa results which got the fourth quarter corporate earnings off to a better start than expected. Buyers pushed the Dow up 60 points to 13,390 with the rally continuing overnight once China, world’s second biggest economy announced a higher than estimated trade balance for last month of +$31.6 billion versus +$19.7 billion predicted.

This has kept the bulls in charge here in Europe as well with the FTSE in the black and bang on the 6100 level at the time of writing. Clients remain sellers of the index and also very bearish of US indices, so they are very much going against the trend at the moment, pinning their hopes on a correction at some point soon.

Central bank decisions will be the focus of the day with the first BOE and ECB rate decisions of 2013. Unfortunately, there’s likely to be little action from either so investors will be focusing on the words rather than the actions.

The euro lost 17 pips against the greenback yesterday, closing at 1.3062 as the ECBank will announce the results of its monthly policy meeting later today. As mentioned President Mario Draghi is expected to leave the benchmark interest rate unchanged at 0.75% although there is some speculation of lower interest rates bias. Undoubtedly the press conference could confirm or discard that as the rhetoric will be the focus point.

Gold closed at $1657.5 yesterday with a key resistance level around the $1660 mark. It was little changed at two bucks down as investors await a key ECB decision on interest rates at a policy meeting later today. The precious metal is edging up slightly this morning after better than expected trade in China spurred optimism that demand for commodities will remain strong in the face of a strengthening dollar.

Despite a gain in equities, crude prices barely moved yesterday finishing a mere 10 cents up at $93.20 a barrel. Furthermore, the US Department of Energy reported its weekly inventories showing a surge in stockpiles but crude prices again failed to react. However, at the time of writing oil prices are already on the offence following a much higher than anticipated rise in the Chinese trade surplus.