Must read: share moves, oil, UK shop prices, Kantar grocery sales

Stock markets remain volatile, and investors are busy absorbing latest data on shop prices and inflation. Our head of investment wraps up the big news.

GLOBAL MARKETS 

The FTSE 100 is extending gains after its first session of the year in which the UK index gained more than 1%. China-sensitive Burberry Group (LSE:BRBY) is trading at the top of the FTSE 100 while commodity stocks like Glencore (LSE:GLEN), BP (LSE:BP.), Shell (LSE:SHEL), and Centrica (LSE:CNA) are languishing at the bottom on the back of weaker oil and gas prices.

European bourses are higher for a third consecutive session with the CAC 40 outperforming. France’s inflation rate eased to 5.9% in December, beating analysts’ expectations for 6.4%. 

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Asian markets staged gains almost across the board with the exception of the Nikkei. After the Japanese yen surged to a seven-month high amid speculation that the Bank of Japan could start to tilt towards less dovish policy, the central bank’s governor Haruhiko Kuroda quelled the speculation by saying the central bank plans to maintain its loose monetary accommodation. Meanwhile, Japan’s December manufacturing PMI posted the sharpest drop since October 2020, hitting 48.8, firmly below the boom-bust divide of 50, highlighting the negative impact of weakening global demand on its factory activity. 

Wall Street closed lower, with the Nasdaq leading the declines after Tesla Inc (NASDAQ:TSLA) shares slumped by 12% after disappointing vehicle deliveries and Apple Inc (NASDAQ:AAPL) dipped below its psychological $2 trillion market valuation having briefly topped $3 trillion around this time last year. US futures are pointing to a potential rebound at the open at lunchtime as markets await the latest Federal Reserve meeting minutes tonight as well as the US JOLTs job market figures and the ISM manufacturing reading. 

Oil prices are extending losses, down by more than 2%, with Brent crude hovering around $80 a barrel having slumped 4% on Tuesday amid the weakening global demand outlook and a stronger US dollar. Natural gas prices in Europe are also lower, dropping below 70 euros/MWh, the lowest level since before Russia’s invasion of Ukraine.

UK BRC SHOP PRICE INDEX 

The BRC annual rate of shop price inflation fell to 7.3% in data collected between 1st and 7th December, down from 7.4% in November, driven by a drop in inflation rate of non-food items. However, food price inflation hit a record high of 13.3%, up from 12.4%, driven by a 15% surge in fresh food prices and an 11% jump in less perishable items. 

Shop price inflation is still uncomfortably higher despite the slight drop in December. Geopolitical uncertainty around the war in Ukraine continues to put upward pressure on food prices, adding to the cost-of-living squeeze on households by making essential goods much more expensive. The BRC figures for December highlight why many families opted for a slimmed down Christmas this festive period, given the inflated cost of food and drinks when combined with expensive energy bills and increasing mortgage rates on top. Looking ahead, the Bank of England’s rate hiking path and the softening demand outlook should hopefully ease some of these inflationary pressures later this year.

RYANAIR 

Ryanair’s December passenger traffic grew by 21% to 11.5 million guests, operating over 65,500 flights across the month. Its load factor (ratio of actual passengers to available seats) came in at 92%. Ryanair’s passenger numbers are now 3% above its pre-Covid high for the festive period and the airline is forecast to fly 166.5 million passengers for the full year ending in March, outpacing its previous all-time high of 149 million. 

After a challenging few years during the pandemic when most flights were ground to a halt, Ryanair is storming ahead in terms of its passenger numbers, outpacing its pre-Covid traffic figures and is on track to achieve another record year.

KANTAR GROCERY SALES 

UK grocery sales rose by 9.4% in the four weeks to 25 December year-on-year totalling £12.8 billion, according to Kantar. The German discounters Aldi and Lidl grew sales by 27% and 23.9% in the 12 weeks to Christmas day respectively year-on-year. Sales at Tesco (LSE:TSCO) rose by 6% over the same period versus Sainsbury (J) (LSE:SBRY) up 6.2%, Asda up 6.4% and Morrisons down 2.9%. Kantar reported UK grocery price inflation down slightly by 0.2 percentage points to 14.4% but stuck in double digits. 

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The German discounters enjoyed surging sales year-on-year, partly thanks to flattering base effects after the final months of 2021 were negatively impacted by the Omicron variant. They benefited from a seasonal boost to food sales around the festive period with their attractive low price appealing to consumers who are grappling with cost-of-living pressures. The World Cup also provided a tailwind to sales of snacks. Consumers have been broadening out away from the Big Four in the hunt for a bargain which is partly why Aldi has managed to surpass Morrisons recently in terms of grocery market share. 

It appears to be a competitive race to the bottom on price among the major supermarkets, which is made more difficult by the fact that inflation is pushing up costs. A weakening consumer outlook could weigh on overall supermarket sales this year as shoppers trade down to cheaper alternatives and spend less on discretionary items or on higher margin, more luxurious ranges. This plays into the hands of the Aldi and Lidl which are focused on offering the lowest prices in the UK. While this should help to support its sales, margins may get squeezed.