Must read: stocks start December higher, UK house prices, Hotel Chocolat

December is historically a good month for stocks, and today's strong start bodes well. Our head of investment has the morning's hot news.

GLOBAL MARKETS

European markets have kicked off December on a positive note with the DAX leading the charge. 

However, the FTSE 100 is lagging behind, trading just above the flatline, with Pearson (LSE:PSON) and BAE Systems (LSE:BA.) at the bottom of the UK index, offset by sharp gains for Ocado Group (LSE:OCDO) and Segro (LSE:SGRO). Risk-on sentiment has lifted global equity markets following dovish comment from Federal Reserve chair Jerome Powell.

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US markets closed November on a positive note with the Nasdaq ending the session up over 4% after Fed chair Powell signalled smaller interest rate hikes could begin this month. The US dollar sold off as a result, with USDJPY down nearly 1.5%, lifting gold and copper prices to two-week highs.

Markets in Asia rallied overnight with the Hang Seng staging gains after a report suggested that China could allow some people who test positive for Covid to quarantine at home, as Beijing looks to quell the protests and reduce pressures on the economy by easing some of its strict zero-tolerance pandemic restrictions.

MONTH-END

After a very difficult year, finally some positivity has returned to the markets. November was a strong month all round with the FTSE 100 logging its best monthly performance since in two years lifted by energy and consumer stocks. The Stoxx 600 enjoyed a gain of around 6.1% with household goods leading the charge.

US indices posted strong gains in November with the S&P 500 rallying 5.4%, marking the second consecutive monthly gain for the first time this year. In Asia, the Hang Seng Index jumped almost 27%, the most since the late 1990’s spurred by optimism towards the potential loosening of covid restrictions. The reopening trade boosted stocks which have suffered the most during the pandemic such as those in the hospitality, travel and casino sectors.

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The dollar however was not so fortunate, suffering its worst month in twelve years offsetting some of this 2022’s strong uptrend, dampened by a growing expectation that the Fed could start to slow its pace of tightening as well as increased investor risk appetite. The US dollar index rallied 16% in the first 10 months of the year but suffered a more than 5% slide over the last month.

NATIONWIDE HOUSE PRICE INDEX

Nationwide’s UK November house price index grew by 4.4% year-on-year slowing from 7.2% in October and falling short of estimates for growth of 5.8%. On a monthly basis, house prices slid by -1.4% versus a drop of 0.9% in November and below forecasts for -0.3%. This was the biggest monthly decline in June 2020 at the height of the pandemic.

The fiscal fiasco of the mini-budget which pushed mortgage rates sharply higher added to existing upward pressure on lending rates and sharply weighed on housing demand in Britain.

Macroeconomic pressures from the rising cost of living and a slowing economic trajectory are dampening house prices with many potential buyers opting to rent instead for now until house prices and mortgage rates come down next year. Offsetting a more painful drop in the housing market is the chronic undersupply of housing in this country, which is propping up prices. Earlier this week, Zoopla said house prices would fall by about 5% next year, while the OBR estimates house prices will fall by 9% over two years.

HOTEL CHOCOLAT

Hotel Chocolat (LSE:HOTC) suffered a loss of £9.4 million in the year to June after writing off a £23 million investment in Japan. However, its pre-tax profit rose by 126% to £21.7 million on sales up 71% to £226 million, helping lift its shares today. The retailer said it expects ‘December will be busier than ever’ despite reducing its online marketing spend as it focuses on lower volume but higher quality full-price sales. In a C-suite shake-up, Hotel Chocolat has announced that chair Andrew Gerrie and CFO Matt Pritchard will both be leaving the company next year.

During the summer, Hotel Chocolat suffered a share price crash of 45% after announcing plans to pull back from Japan and the US, adopting a ‘de-risked approach to international growth’ following a business review. Since then, shares in the chocolatier have been cautiously attempting to regain ground.

To face the macroeconomic challenges particularly of rising costs, Hotel Chocolat has been streamlining the business geographically and giving its attention to higher-end, expensive products in the hope that its luxury range will prove to be more resilient during the looming recessionary environment. Although December is likely to provide a seasonal boost to sales around Christmas, the start of 2023 could prove to be very challenging.