Can Black Friday help or hinder global stock markets

This will be what everyone will be watching for on Monday. Initial signs suggest that retailers had a better Black Friday this side of the Atlantic, compared to the US. In the US consumers spent less money in 2016 compared with 2015, suggesting that President-elect Trump may not be instilling consumer confidence. In contrast, initial reports suggest that UK retailers had a bumper weekend, Barclaycard reported a record number of transactions on Friday, Nationwide said its customers spent 13% more this year compared to last year, and estimates of £1.9bn in sales were blown out of the water, with sales expected to top £2.9bn.

Can Cyber Monday deliver more good news to UK retailers?

The UK shopping splurge may not stop there, today is Cyber Monday, which is expected to be an even bigger shopping day, so this could indeed turn into one of the best Christmas shopping season in years, if not for all time, with electrical and clothing sales the key winners. Some may argue that the UK consumer may not be worried about Brexit, however, fears of a rise in the price of some imported goods early next year, as the impact of this year’s sharp decline in sterling starts to play out, could be fuelling consumers’ demand for goods now, only for a disappointing January sales season next year.

For the UK’s beleaguered retailers, Black Friday could deliver some much-needed good news. The FTSE 350 general retail index, which includes JD Sports, M&S and Next, is down more nearly 20% in the past year, bucking the strength of the overall FTSE 100. If Black Friday sales reports suggest that the UK consumer is still willing to splash the cash, then we could see some of the big electrical retailers’ stock prices show some signs of recovery like Dixons Carphone.  A lot rests on this shopping season for clothing retailers like M&S and Next, who have both seen declines of 25% and 30% in their share prices so far this year.  Considering the UK consumer wholeheartedly embraced Black Friday, any retailer who fails to deliver a good trading statement could be severely punished by the market. We point out M&S, in particular, it has struggled to boost sales in clothing this year; if the market doesn’t see a positive end to the year then its share price could experience further downside.

FTSE 100 at risk even if consumer sales take off

Overall, Black Friday sales could knock the wind out of the US stock markets, after they reached fresh record highs on Thanksgiving week. Any decline in the S&P 500 and Dow Jones on Monday, could set the tone for a less euphoric week for stock markets. In contrast, positive retail news could boost the UK markets, the FTSE 100 futures market is predicting a higher open on Monday. If this happens, be careful. The FTSE 100 is trading at a ridiculously high P/E ratio, which was heavily reported at the weekend to put this into context, the FTSE 100 is trading at a P/E of 58.9, compared to 20.7 for the S&P 500 and 19 for the Eurostoxx 50. It is worth noting, that other ways to calculate P/E ratios, including the Best P/E (price divided by Bloomberg estimates of EPS), is much less overvalued, however, it is a concern, and any jittery market action in the US could fuel a sell off in the FTSE 100 this week.

Banks in focus

Aside from shopping, there are some big events to watch out for this week. First up are the results of the BOE bank stress tests, on Wednesday, which were implemented after the UK’s Brexit vote. 6 of the largest UK banks and one building society were subjected to various scenarios including a sharp decline in homebuilding and the oil price. All banks are expected to pass, although Standard Chartered is expected to come off worse due to its exposure to emerging markets and commodities.  

Any bounce in the EUR may be temporary

On the macro front, the second reading of US GDP on Monday and UK money supply data are key. Later in the week the focus will shift to the US payrolls data on Friday, which is the last report before the all-important Fed meeting on 14^th Dec. The dollar retracted from a multi-year high in early trading at the start of this week, which has given the euro a chance to claw back some of its recent losses. But political risks are likely to limit euro upside this week, with Italy’s referendum on its constitution taking place next weekend. The spread between German and Italian bond yields has declined to a 3 year low, which is a sign of rising fears about Italy’s creditworthiness; its banking stocks also remain under pressure. We have already seen a high of 1.0625 in EURUSD on Sunday evening, however, there was a reluctance to let this rally go to far, which may be a sign that Italian political risks could bite for the single currency this week.