UK retail sales fall sharply in December, US consumer confidence dips - as it happened

Despite the stronger euro as the dollar weakens, European markets have ended the week on a positive note with the Stoxx index at its highest level for ten years. Growing hopes about company earnings and growth in the economy have combined to offset any negative concerns.

In the UK the FTSE 100 has also finished higher, despite a weak performance from retailers after disappointing high street sales figures for December. In the US, early optimism has receded, as investors await news on whether the government faces a shutdown. Worse than expected US consumer confidence figures have also hit sentiment. The final scores showed:

• The FTSE 100 finished up 29.83 points or 0.39% at 7730.79
• Germany’s Dax rose 1.15% to 13,434.45
• France’s Cac climbed 0.58% to 5526.51
• Italy’s FTSE MIB was 0.5% better at 23,749.22
• Spain’s Ibex ended up 0.45% at 10,479.5
• In Greece, the Athens market added 1.19% to 847.56

On Wall Street, the Dow Jones Industrial Average is currently down 55 points or 0.21%.

On that note, it’s time to close for the day. Thanks for all your comments, have a good weekend, and we’ll be back on Monday.

Here’s our latest on Carillion. Rob Davies writes:

The chair of the British Medical Association has demanded answers about the future of two major hospitals that Carillion was building when it collapsed, amid mounting concern about the impact of any delays on stretched NHS services.

Patients’ groups joined the doctors’ trade body in calling for clarity after local NHS trusts admitted that work on the £335m Royal Liverpool University and Birmingham’s £350m Midland Metropolitan hospitals is on hold.

Aidan Kehoe, chief executive of the Royal Liverpool and Broadgreen University hospitals NHS trust, said Carillion’s liquidation would further postpone a project that has already been delayed twice.

The full story is here:

Dr Harm Bandholz, chief US economist at UniCredit, agrees the impact of a US government shutdown should be modest. But given that could be the case, it might make such a move more likely. He said:

The impact of a shutdown, if it happens, on the economy should be very limited as it affects only so-called ‘non-essential’ government services. Financial markets may also be inclined to discount this renewed display of dysfunctionality in Washington as the tax bill has already been passed. This could be yet another reason why Democrats as well as Republicans may be willing to take a stand and shut the government down That said, they currently still have another 13 hours to prevent such an embarrassment.

How bad would a US government shutdown be. Paul Ashworth at Capital Economics said:

It is still possible that Congress will reach a late deal to avoid a partial government shutdown, but the chances of agreement seem to be slipping away. That said, even if it lasted for a week or more, a shutdown would have only a modest impact on first quarter GDP growth.

Oil prices are on track for their biggest weekly fall since October as a recent rally fizzles out.

A rise in US production has outweighed declines in inventories, and the output cap agreed by Opec and Russia. Analysts had always expected US shale producers to ramp up their activities as the crude price recovered, providing a counterpoint to the Opec attempts to reduce supplies. The International Energy Agency said in its latest report that global oil stocks had tightened, but it pointed out that the US production increases would have an impact.

Brent crude, which hit a three year peak of $70.37 a barrel on Monday, is now down 1% on the day at $68.62.

Back with UK retail sales, and while the FTSE 100 might be in positive territory, the representatives from the high street are having a bad day all round.

B&Q owner Kingfisher is down 2.6%, the biggest faller in the leading index. It has been hit by, not only the disappointing retail sales figures themselves, but also the profit warning from Carpetright, suggesting big ticket home improvement items are off the agenda at the moment for UK consumers. Carpetright meanwhile is down a massive 43%.

Also on the slide are shares in Next, down 1.9%, Tesco, 0.7% lower and - in the FTSE 250 - Dixons Carphone, off 2.6%.

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The survey indicated some uncertainty about Donald Trump’s tax cuts, especially the timing of any benefits to consumers, but the bulk of those questioned though the reform would be positive. The survey’s chief economist Richard Curtin said:

While the preliminary January reading for the Sentiment Index was largely unchanged from last month (-1.5%), consumers evaluated current economic conditions less favorably (-4.6%). This small decrease in current conditions produced a small overall decline. Importantly, the survey recorded persistent strength in personal finances and buying plans, while favorable levels of buying conditions for household durables have receded to preholiday levels in early January, largely due to less attractive pricing. The Expectations Index remained virtually unchanged at 84.8.

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Tax reform was spontaneously mentioned by 34% of all respondents; 70% of those who mentioned tax reform thought the impact would be positive, and 18% said it would be negative.

The disconnect between the future outlook assessment and the largely positive view of the tax reform is due to uncertainties about the delayed impact of the tax reforms on the consumers. Some of the uncertainty is related to how much a cut or an increase people, especially high income households who live in high-tax states, face

Near and long term gas price expectations inched upward in early January but remained significantly below their peak. While long term inflation expectation remained at its 2017 average level and short term inflation expectation inched upward, consumers continued to remain very optimistic about the low national unemployment rate.

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Meanwhile the latest US economic indicator has come in below expectations.

The University of Michigan survey of consumer sentiment came in at 94.4 in January, down from December’s final figure of 95.9 and below analysts’ forecasts of a rise to 97.

Although of course there are contigency plans being put in place, just in case the US government does shut down......

Here’s our piece earlier on the attempts to prevent a US government shutdown:

As expected, US markets have made a positive start, with investors seemingly untroubled by the prospect of a government shutdown. As well as the feeling that a resolution will be found at a vote in the Senate later, the political risks are overshadowed for the moment by optimism over company results during the earnings season.

So the Dow Jones Industrial Average is 12 points or 0.07% higher while the S&P 500 opened up 0.24% and the Nasdaq Composite 0.32%.

There are a couple of potential market moving events ahead in fact:

Craig Erlam, analyst at the currency firm Oanda, says US investors are likely to shrug off fears over a US government shutdown when the opening bell rings on Wall Street:

US equity markets are seen reversing Thursday’s losses at the open on Friday, even as investors prepare for the first government shutdown since 2013 if the Senate doesn’t pass a temporary spending bill.

Investors don’t appear particularly bothered about the prospect of a government shutdown, with the assumption being that one will eventually be signed and any economic impact will be minor or non-existent.

While the US dollar has remained under significant pressure, there is little to suggest this is related to the budget talks while rising US yields is likely more a reflection of the general central bank tightening environment.

The backdrop for UK consumers will remain tough in 2018 before easing in 2019, according to Andrew Sentance, senior economic adviser at PwC.

Commenting on the weak retail sales data out this morning, the former member of the Bank of England’s Monetary Policy Committee says:

Taking 2018 as a whole, prices are still likely to increase more than wages, so this will be another year of consumer squeeze. As a result, we expect economic growth to be around 1.5%, not disastrous, but disappointing compared with the mid 2010s.

Weak consumer spending will continue to be a drag on the UK economy in 2018, but the prospects are brighter for 2019 and beyond - as long as we get a reasonable Brexit deal with the other EU-27 countries.

19 Jan 201808.32 EST

Helena Smith

Greece has won rare praise today from EU commission’s chief spokesperson, Margaritis Schinas, fuelling hopes that debt relief talks could soon be in the offing. Helena Smith reports from Athens:

Four days after MPs endorsed more biting austerity measures and reforms in a rowdy parliamentary vote, Greece’s fiscal progress was roundly applauded by the man more usually associated with tough words for the country.

In an interview with state-run ERT TV, EU commission spokesman Margaritis Schinas described the bailout compliance review Athens is currently conducting with creditors as a “model review” that was “going very well.”

“Everyone wants Greece to stand firmly on its feet,” he said, insisting it was imperative that forces inside the country supported the corrective economic adjustment reforms that had been legislated under international economic supervision under the three emergency rescue programmes Athens had received.

Now that the latest bailout review was about to be concluded – with eurozone finance ministers expected to unlock up to €6bn in aid for the country when they meet in Brussels on Monday - discussion on Greece’s post-bailout era could begin, he said. “From September, the political winds in Europe have changed,” Schinas said.

“For the first time all of our economies are in growth … and the euro is regaining its place as an anchor of stability on the world scene.”

Back in 2015, Yanis Varoufakis said he Alexis Tsipras whether he was “completely stupid”* after the Greek prime minister agreed to a demand by international creditors in for large primary surpluses.

Speaking to Parapolitika radio about his time as Greek finance minister, Varoufakis said:

I told him: ‘Are you completely stupid? What did you get in return?’ And he said: ‘Oh, did I do something stupid? It’s OK, we’ll take it back’.

Varoufakis criticised his successor Euclid Tsakalotos, calling him a “yes man” who “I no longer recognise”. Ouch.

*Varoufakis said he did not actually use the word “stupid,” it was worse than that.

Here’s quick markets round-up from Mike van Dulken, head of research at Accendo Markets:

Equities are positive to close out the week, rebounding from a negative US close and ahead of a key Senate vote to stave off a government shutdown tonight. Weaker than expected UK retail sales have seen the UK’s blue chip index take a leg higher, benefiting from sterling’s retreat from fresh post-referendum highs earlier this morning.

Interestingly, Germany’s DAX is the rank outperformer, this in spite of additional euro strength after hawkish ECB comments, whilst US equities point towards a positive open this afternoon. The FTSE has climbed higher thanks to the pound’s weakness...while miners are embracing the weaker dollar’s fillip for metals.

The FTSE 100 is currently up 0.28% at 7722 while Germany’s Dax is up just over 1% and France’s Cac has climbed 0.47%.

Over in the US the Dow Jones Industrial Average is forecast to open around 88 points higher.

As for the pound, it is down 0.12% against the dollar at $1.3875 - despite the pressures on the US currency - and 0.27% lower against the euro at €1.1317.