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UK stock market commentary (November 02, 2012): Sadness hits the UK high street again

Another high street casualty could possibly take with it around 6000 jobs as electrical store Comet goes to the wall. It is a sorry sign of the times and reminds us that the UK economy is suffering with a banking system that also remains on life support. The retailers inability to get the appropriate cash flow running through its stores to survive acts as a sharp reminder that not only is cash king and critical to the survival of most businesses, but in the case of this retailer it was its reluctance to fully embrace the online world. Stiff competition is coming from all angles when it comes to these electrical retailers with so much choice from the internet, being dominated by Amazon and then of course there’re the supermarkets. Tesco is the UK’s third biggest electrical retailer right now.

So whilst the demise of one store may be good for its competitors, who saw their share prices jump significantly on the back of the news, they must not become complacent and be wary of the threat posed from those well established online suppliers of televisions and washing machines. Moves are afoot though as recently Home Retail, the owner of Argos, have announced that they are to scale back their catalogues and concentrate on their online offering. Only recently I was in an Argos store and it was interesting to over hear some people from Down Under who had clearly not ever shopped there before complain about the whole set up and how they couldn’t see anything – for them is was sheer confusion. So maybe a refresh of the long and standing model is required and it will be interesting to see just how far they go to give Argos a change.

Stock markets enjoyed a strong bounce yesterday following the strong ADP employment data and some strong US consumer confidence numbers despite being lower than expected. But for the big jump in the Dow it hasn’t translated into gains for the FTSE this morning as all the gains were early on in the US session when European indices were still open.

At the time of writing the FTSE is 10 to 15 points lower around the 5850 level and here it might remain ahead of today’s nonfarm payroll data. Expectations are for a figure of 125k with the unemployment rate possibly ticking back up to 7.9% from 7.8% following that substantial fall last month. This is going to be a very interesting figure today purely because no sitting President since the 1930s has ever been reelected when unemployment has been above 8%. A move but above this level could be a very bad omen for Obama. After today it’s fully into election mode across the pond.

It was a breath of fresh air for the US markets yesterday, following a string of above estimates economic data which showed the recovery is on course albeit at a slow pace. That spurred demand for the greenback versus the shared currency as a consequence. Meanwhile, Europe remains mired in sovereign debt troubles and to make matters worse, street protests be it in Greece, Spain or Portugal make headlines on a regular basis. The EUR/USD pair lost 17 pips to 1.2942 and this morning is suffering from further malaise as it tests the 1.2900 level.

A strengthening US dollar put downward pressure on gold prices yesterday which dropped $5.1 to $1713.8. Any sign the US economy is doing better than anticipated tends to send investors into the dollar and out of gold. That could imply deflation is perceived as a more immediate danger and dealing with that entire monetary stimulus bound to bring inflation is for another day.

Renewed optimism the US economy is on the right track spilled into the energy markets yesterday pushing the WTI crude prices 74 cents up to $86.79 a barrel. The climb was also supported by the weekly inventories statistics released by the US Department of Energy indicating a drop in crude stockpiles. The reaction to the employment numbers out later today is likely to offer further direction for energy sector.