Today brings us up to date on the UK retail sector but before we get to it there is something that will have the full attention of the Bank of England. Let me hand you over to City-AM.
The Royal Bank of Scotland was hit this morning on the news that two brokers had lowered their forecasts for the company’s shares.
Analysts at Macquarie downgraded the company from buy to neutral this morning, slashing its target price to 201p, from 246p.
Meanwhile, Goldman Sachs reiterated its buy rating on the stock, but lowered its target price to 325p from 360p.
Shares were trading down around eight per cent to 182.5p.
Firstly at least I warned you as those who read my post on the sixth of this month will be aware. The theme of the credit crunch era has been that RBS is always about to turn a corner ( as in a way highlighted by a 360p price target) but the path turns out to be this one.
We’re on a road to nowhere
We’re on a road to nowhere
We’re on a road to nowhere
If you believed Brewin Dolphin on the 6th you may be wondering what happened to the ” path to redemption”? Also those with longer memories may be wondering about the “nest egg”
City Minister Lord Myners yesterday claimed that the ownership of RBS and LBG – which were both rescued from collapse by the Treasury in the credit crisis – represented a “nice little nest egg” for the taxpayer. ( Evening Standard September 2009)
I have picked this out for a reason because the Ivory Tower of the Bank of England has trumpeted the “Wealth Effects” of its policies whereas RBS has been a spectacular case of wealth destruction. I can widen this out as Barclays is at a recent low at 138 pence reminding me that the chairman who promised to double the share price has gone I think, which is for best because it has halved. The Zombie Janbouree continues with HSBC below £6 and Lloyds at 59 pence.
This is way beyond just a UK issue as for example the European banks are in quite a mess headlined by Deutsche Bank falling back below 6 Euros this morning. Or in some ways more so by the Spanish banks as the economy is still doing well but they look troubled too. Here is Mike Bird of the Wall Street Journal.
Japanese regional bank share prices have now broken below their Feb 2016 lows. The sector is, to use the technical terminology, completely screwed.
This is quite a change of approach from Mike who is something of the order of my doppleganger on Japan. Anyway my point is that the them here is that there have been no wealth effects from the banks and more seriously they cannot be supporting the economy.
The official Bank of England view is that banks are “resilient” and it is “vigilant”
On the other side of the coin support is being provided by another surge in the UK Gilt market. These are extraordinary times with the UK having a ten-year yield of 0.44% and a five-year yield of 0.35%. Those who have owned UK Gilts have seen extraordinary gains and this includes the ordinary person with pension savings. However this is no silver bullet as we would be in a better place than we are if it was, But it does support the economy.
Whilst I am looking at this area let me deal with all the inverted yield curve mania going on via a tweet that proved rather popular yesterday.
Some worry about the yield curve ( 2s/10s) being inverted but I am sanguine about that. This is because when it bought £435 billion of UK Gilts the Bank of England distorted the market giving us an example of Goodhart’s Law.
It does not buy two-year Gilts thereby distorting the market and making past signals unreliable.
The Bank (as agent for BEAPFF) purchases conventional gilts with a minimum residual maturity of greater than three years in the secondary market.
This morning has brought another good set of retail sales figures for the UK.
The quantity bought in July 2019 increased by 0.2% when compared with the previous month, with strong growth of 6.9% in non-store retailing.
The duff note there is the implication for the high street but the numbers below confirm that the situation for the UK economy overall remains positive.
In the three months to July 2019, the quantity bought in retail sales increased by 0.5% when compared with the previous three months, with food stores and fuel stores seeing a decline…….Year-on-year growth in the quantity bought increased by 3.3% in July 2019, with food stores being the only main sector reporting a fall at negative 0.5%.
The positive spin in the decline of the high streets is provided by this.
In July 2019, online retailing accounted for 19.9% of total retailing compared with 18.9% in June 2019, with an overall growth of 12.7% when compared with the same month a year earlier.
The flipside is that less money flows through the high street and sadly I suspect this is not a new trend.
Department stores’ growth increased for the first time this year with a month-on-month growth of 1.6%; this was following six consecutive months of decline.
Let me shift now to why is this happening? The situation regarding the UK consumer is strong and has been supported by several factors. The first is in the numbers themselves and repeats a theme I first highlighted on the 29th of January 2015.
Both the amount spent and the quantity bought in the retail industry reported strong growth of 3.9% and 3.3% respectively when compared with a year earlier.
That gives us an ersatz inflation measure of the order of 0.6% which made me look it up and the official deflator is 0.8%. That is very different to the ordinary inflation measures we see which are 2%-3%. So in a sense your money goes further ( strictly declines in value more slowly) and is compared to this.
Estimated annual growth in average weekly earnings for employees in Great Britain increased to 3.7% for total pay (including bonuses) and 3.9% for regular pay (excluding bonuses).
So in real terms there are gains in this sector. Thus it is no great surprise it has done well.
Also there is the fact that whilst the annual rate of growth has slowed we are still on something of an unsecured credit orgy.
The additional amount borrowed by consumers to buy goods and services was £1.0 billion in June, compared with £0.9 billion in May…….The annual growth rate of consumer credit continued to slow in June, falling to 5.5%
Is anything else growing at an annual rate of 5.5%.
There seems to be something of a media mania here as this from BBC Essex illustrates.
“Customers I’ve never seen before are coming in just for cauliflowers” Great Baddow greengrocers Martin and George Dobson are selling imported cauliflowers at cost price as Britain experiences a shortage. Prices have reached £2.50
I checked in two local supermarkets and they were selling then for £1 albeit they were from Holland. Then I went to Lidl and they were selling UK cauliflowers for 75 pence. Maybe a bit smaller than usual but otherwise normal so I bought one.