Thursday was another poor day for equity investors, with both the FTSE 100 and the S&P 500 falling about 1%. This time, in the UK, it was less about the mining shares and more about food retailers. Morrison’s shares fell nearly 12% after announcing what in effect is a price battle with the discount retailers, Aldi and Lidl. The other major quoted food retailers, Sainsbury’s and Tesco also took a battering as investors assume this move will create a price war amongst all the food retailers. Today’s share price move was starkly opposite to that of Poundland’s debut on Wednesday, as its share price rose 30% from the initial price offering to the market. The new breed of retailers, either those who rely on the internet, or those who rely on pack-it-high-sell-it-cheap, are having a real impact on the traditional retailer. The read through from this for the wider economy will be to keep inflationary pressures subdued and therefore allow interest rates to remain on hold for longer.
At 6550, where the FTSE 100 closed on Thursday evening, the index is now trading back to its 200 day moving average. Once again all thoughts of breaching past highs have been dispelled for another day. Investor fears continue over the state of the Chinese economy, which was not helped by the latest retail sales data coming in below expectations, and continued concerns as to what the weakness in commodity prices is telling everyone about the broader global economy. Russian troops reportedly moving closer to the Ukraine border added to the nervousness.
Two economic reports were released in the US that on another day could have improved investor sentiment: a retail sales report showing a 0.3% improvement in February; and last week the number of jobless people applying for benefits came in lower than expected. Today’s reports may lend a little credibility to the belief that the early weakness to the US data was weather related, and that now the weather is improving so may the economic data.
It won’t be long before investor’s minds turn to the Q1 2014 earnings season. The Q4 2013 earnings reports came in with few shocks. Equities are no longer undeniably cheap, but closer to fair value, and so it is important that company reports show signs of earnings growth to support equity markets.