FTSE CLOSE: Strong retail sales lift London market but Royal Mail shares take a dive

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CLOSE: Strong retail sales lifted the London market despite Royal Mail shares taking a dive on tumbling earnings.

The FTSE 100 Index closed up 44.99 points to 6,794.71, after October's retail sales rose at their strongest yearly rate in more than a decade.

Royal Mail sat at the top of the biggest fallers, down 7 per cent, after posting a fall in half-year earnings. Shares were off 34.9p to 464p.

Across Europe, Germany's Dax was up 0.2 per cent, while the Cac 40 in France rose 0.6 per cent.

The FTSE 100 Index closed up 44.99 points to 6,794.71, after October's retail sales rose at their strongest yearly rate in more than a decade

On the currency markets, the pound was 0.1 per cent higher against the US dollar at 1.245 and grew 0.3 per cent versus the euro at 1.168.

Sterling ticked up to 1.25 US dollars on the back of October's retail sales, but pared gains in afternoon trading.

Richard Wiltshire, chief FX broker at ETX Capital, said the pound's failure to remain above 1.25 US dollars suggests Brexit uncertainty lingers and that the pound remains "inherently quite weak".

The price of oil stepped up 0.5 per cent to 46.84 US dollars a barrel amid growing optimism that the Opec cartel will succeed in striking a deal to curb output at a meeting on November 30.

In UK stocks, housebuilders were racing ahead, with Barratt Developments rebounding from a slump in the previous session.

Barratt dropped nearly 3 per cent on Wednesday after warning of a slowdown in the London property market, but bounced in Thursday's session to trade up 4 per cent or 235p to 6,085p.

Shares in Persimmon and Taylor Wimpey also rose 16.5p to 486p and 3.6p to 152.1p respectively.

Away from the top tier, Virgin Money dropped more than 6 per cent after American billionaire Wilbur Ross offloaded his remaining 12 per cent stake in the lender for £171.5 million.

It was almost double the shares his private equity firm WL Ross & Co had previously planned to sell, having gradually reduced its stake since 2014.

Shares were down 21.8p to 316.7p.

Meanwhile, Majestic Wine rose nearly 5 per cent as it swung to a loss, but cheered a 10.6 per cent rise in underlying sales growth at £205.6 million.

The biggest risers on the FTSE 100 Index were Randgold Resources up 235p to 6,085p, Barratt Developments up 16.5p to 486p, Mondi up 47p to 1,558p, BT up 11.3p to 373.4p.

The biggest fallers on the FTSE 100 Index were Royal Mail down 34.9p to 464p, Rolls Royce down 39.5p to 699p, Hikma Pharmaceuticals down 69p to 1,664p, Johnson Matthey down 108p to 3,227p.

15.00: The Footsie was on safe ground by late afternoon as investor focus turned to the US and Fed chair Janet Yellen who is set to testify before the US Congress.

By mid-afternoon, the FTSE 100 index was up 29.2 points at 6,782.8, while in the US the Dow Jones fell just 4.73 points to 18,863.4.

In prepared remarks before the testimony, Yellen said the Fed could raise interest rates 'relatively soon' if economic data keeps pointing to an improving labor market and rising inflation. 

The statement is a clear hint the central bank could hike rates next month with traders pricing in an 81 per cent chance of a December move.

Rocky ground: Donald Trump has said he would replace Federal Reserve Chairwoman Janet Yellen if elected - 'She is not a Republican. When her time is up, I would most likely replace her because of the fact that I think it would be appropriate'

Neil Wilson, analyst at ETX Capital, said: 'The fact is a December rate hike has already been priced in - markets think there is a roughly 90 per cent chance the Fed will increase the target federal funds rate. 

'It now looks almost impossible for the Fed not to raise rates next month - it's painted itself in a corner and has to respond with a hike or all hell will break loose in the markets.'

He added: 'Today's jobless numbers - showing unemployment at a four-decade low - only strengthens the case for the Fed to act. 

'Rising bond yields since Donald Trump's win further add to the argument for the central bank to raise rates. Longer term, Trumpflation may not be all it's cracked up to be as a savings glut exists globally.'

US stocks have been on a tear since Donald Trump's surprise victory in the Presidential election, with the Dow closing at a record level four days in a row.

The rally lost steam this week with investors seeking clarity on Trump's campaign promises and bracing for higher interest rates.

Trump's proposals to cut taxes and raise infrastructure spending are expected to boost economic activity and inflation, raising the possibility of more interest rate hikes.  

However analysts believe the $1trillion infrastructure spending proposed by Trump may be toned down by Congress and will be spread out over several years.  

On the data front US consumer prices recorded their biggest increase in six months in October. 

The Consumer Price Index increased 0.4 per cent last month after rising 0.3 per cent in September.

Other data showed US housing starts surged to a more than nine-year high in October and the number of Americans filing for unemployment benefits fell to a 43 year low last week.

Cisco shares fell after its current-quarter forecast fell below analysts' estimates, while Wal-Mart Stores dropped after the world's largest retailer reported lower-than-expected quarterly comparable sales. 

12:00: The Footsie remained higher at lunchtime, supported by firmer oil prices and strong UK retail sales data, although the main focus stayed on key testimony later today from Federal Reserve boss Janet Yellen.

Around mid session, the FTSE 100 index was up 20.1 points, or 0.3 per cent at 6,769.9, below an earlier peak of 6,780.86, but above lows of 6,745.08, having closed 43.02 points weaker yesterday as oil prices retreated.

Brent crude managed to recover today, however, jumping 1.5 per cent to $47.33 a barrel, with all eyes on hopes for a supply deal at a key Opec cartel meeting at the end of this month.

US stock index futures pointed to a modest resumption of gains today on Wall Street after a retreat yesterday, although much will depend on some key US inflation data and Yellen's testimony before the Joint Economic Committee in Washington today.

Higher: Around mid session, the FTSE 100 index was up 23.0 points, or 0.3 per cent at 6,772.7, just below an earlier peak of 6,778.98, but well above lows of 6,745.08

The Fed chair's comments will be scanned in light of Donald Trump's presidential election win last week, the rise in inflation expectations derived from his policy plans and with markets now pricing in a US rate rise next month.

Aside from Yellen's words, traders will also have the October US consumer price index to digest later, with a rise in CPI to 1.6 per cent expected, up from 1.5 per cent in September.

European markets stayed mixed, however, with the CAC 40 index in Paris up 0.1 per cent, but Frankfurt's Dax 30 index off 0.2 per cent after some subdued German unemployment data today.

On currency markets, the pound remained firmer versus the dollar today, adding 0.2 per cent to $1.2470, but fell 0.1 per cent against the euro to €1.1618 despite further evidence of strength in the UK economy despite the concerns over Brexit.

After some fairly solid numbers on inflation, unemployment and wages in the past few days, UK October retail sales today proved much stronger than expected.

The Office for National Statistics said retail sales volumes jumped by 1.9 per cent on the month in October, significantly higher than forecasts for around 0.5 per cent growth, having only edged up 0.1 per cent in September.

Compared with a year earlier, the ONS said retail sales volumes were up 7.4 per cent last month, the biggest annual rise since April 2002, and well above forecasts for a 5.3 per cent rise and the 4.2 per cent annual growth recorded in September.

Martin Beck, senior economic advisor to the EY ITEM Club, said: 'Strong retail sales in October had always looked likely given that sales had barely grown over the previous two months, but the strength of the outturn was exceptional. Even if November and December are softer, there is a good chance that Q4 will see sales growth exceed Q3's near-two-year high.

'That said, there are signs that we are approaching a turning point. The retail sales deflator rose for the third successive month and we are likely to see household spending power squeezed as the impact of the sharp depreciation in the value of sterling steadily passes through to consumer prices.

'Therefore, today's release is likely to represent the high-water mark for retail sales with a much more challenging period to come in 2017 for retailers and consumers alike.'

Among equities, the better than expected retail sales helped high street store chains, with blue chip Next up 1.5 per cent, or 75p at 5,165p, and mid cap Debenhams ahead 1.6 per cent, or 0.9p at 56.9p, although Marks & Spencer, missed out, down 3.6p at 333.9p as its shares traded ex-dividend today.

Strength in selected heavyweight mining stocks continued to provide the main support for the FTSE 100 index as copper prices recovered after a wobble yesterday.

Anglo American rallied 2.7 per cent, or 29.5p higher to 1,123.5p as broker Credit Suisse hiked its target price to 1,300p from 970p, while BHP Billiton added 1.8 per cent, or 22.5p at 1,278.5p, and Rio Tinto gained 1.2 per cent, or 35.0p at 2,998.5p.

Meanwhile, FTSE 100-listed Irish building materials group CRH rose 1.9 per cent, or 51p higher to 2,752p as it reported a 6 per cent rise in cumulative sales for the first nine months of the year and said it continues to expect earnings for the year to be in excess of £3billion.

But Royal Mail was the top blue chip faller, dropping 6.5 per cent, or 32.20p to 466.7p after the postal delivery group said June's EU membership referendum had resulted in a reduction in UK marketing activity, although its first half revenues edged higher thanks to its European business.

And a disappointing update also weighed on catalytic convertors group Johnson Matthey, down 3 per cent, or 99p at 3,236p.

Among the mid-caps, Virgin Money dropped 6 per cent, or 20.5p to 318.0p after shareholder Wilbur Ross's private equity firm placed its remaining 53 million shares in the Challenger bank, representing 12 per cent of the business, at 320p each.

10.15: The Footsie held firm as the morning session progressed, helped by firmer oil prices, while the pound ticked up after strong UK retail sales data, although the main focus today was on testimony later from Federal Reserve boss Janet Yellen.

Around mid morning, the FTSE 100 index was 13.0 points, or 0.2 per cent higher at 6,762.7, easing off an earlier peak of 6,778.98, but still above lows of 6,745.08, having closed 43.02 points weaker yesterday as oil prices retreated.

Brent crude managed to recover slightly today, adding 0.3 per cent at $46.75 a barrel, with all eyes on a key Opec cartel meeting at the end of this month.

European markets, however, were subdued today, with France's CAC 40 index down 0.1 per cent and Germany's Dax 30 index off 0.3 per cent after the latest reading on eurozone inflation.

Shoppers: UK retail sales jumped 1.9 per cent in October, significantly higher than forecasts for around 0.5 per cent growth, having only edged up 0.1 percent in September

The final October consumer prices index for the region was confirmed at 0.5 per cent, up from 0.4 per cent in September but well below the European Central Bank's 2 per cent target.

On the domestic data front, after some fairly mixed numbers on the inflation, unemployment and wages front in the past few days, UK October retail sales proved much stronger than expected today.

The Office for National Statistics said retail sales volumes jumped by 1.9 per cent on the month in October, significantly higher than forecasts for around 0.5 per cent growth, having only edged up 0.1 percent in September.

Compared with a year earlier, the ONS said retail sales volumes were up 7.4 per cent last month, the biggest annual rise since April 2002, and well above forecasts for a 5.3 per cent rise and the 4.2 per cent annual growth recorded in September.

Clothing sales rose 5.1 per cent on the month, their biggest rise since March 2014, while internet sales were more than a quarter higher than in October 2015.

James Hughes, Chief Market Analyst at GKFX.com, said: 'Many had anticipated that spending by consumers would have been hit hard by Brexit discussions, but very much like yesterday's better than expected unemployment numbers it seems that Brexit is not yet a factor affecting individual spending.

'The average weekly spend in October was the highest it's been in the whole of 2016, boosted by Halloween sales at supermarkets and cooler temperatures boosting clothing sales.'

On currency markets, the pound extended its gains versus the dollar after the UK data, up 0.3 per cent to $1.2482, and recovered against the euro to trade flat at €1.1632 as Brexit worries faded slightly in to the background.

The main focus today, however, was on Federal Reserve Chair Janet Yellen's testimony before the Joint Economic Committee in Washington, especially in light of Trump's election win, the rise in inflation expectations derived from his policy plans and markets now pricing in a US rate rise next month.

Ipek Ozkardeskaya, Senior Market Analyst at London Capital Group, said: 'Yellen will speak for the first time after the mispriced Trump victory moved the markets tremendously following the US presidential election on November 8th.

'Despite the remarkable sell-off in the US bond markets, the significant upside shift in the US sovereign curve and the rising inflation expectations, Janet Yellen is expected to sound cautious and to refrain from giving too much credit to recent turbulences in the financial markets. This is the major downside risk in the US and global equity markets today.

'Have the markets gone ahead of themselves? Is the post-Trump rally sustainable? Have the global equities hit the top? Is it time for a correction?

'Although, many questions will remain unanswered, investors will race to pick-up any hint regarding the changes in the FOMC's future outlook, if any.'

Aside from Yellen's comment, traders will also have October US CPI inflation numbers to digest later, with a rise to 1.6 per cent expected from 1.5 per cent in September.

Among equities, strength in selected heavyweight mining stocks provided the main support for the FTSE 100 index as copper prices recovered after a wobble yesterday, with Anglo American rallying 2.3 per cent, or 25.5p higher to 1,19.5p, while Glencore gained 1.3 per cent, or 3.6p at 269.9p

Rio Tinto, ahead 1.2 per cent, or 34.5p at 2,998.0p also benefited after terminating the contracts of two directors following an internal review into a controversial payment to a consultant concerning the Simando iron ore project in Guinea.

Elsewhere on the corporate news front, Royal Mail was the top blue chip faller, dropping 4.8 per cent, or 23.9p at 475.0p after the postal delivery group said June's EU referendum had resulted in a reduction in UK marketing activity, although its first half revenues edged higher thanks to its European business.

But FTSE 100-listed Irish building materials group CRH nudged 1 per cent higher, up 29p at 2,730p as it reported a 6 per cent rise in cumulative sales for the first nine months of the year and said it continues to expect earnings for the year to be in excess of £3billion.

On the second line, fashion group Ted Baker rose 2 per cent, or 52p to 2,553p after it said revenue in the third quarter increased by 14.8 per cent, up a touch from the 14.4 per cent acceleration seen in the first half of the year.

South Africa-based financial group Investec topped the FTSE 250 gainers, jumping 4.5 per cent, or 22.5p higher to 523.0p as it reported a 20 per cent advance in first half profits.

Merchant banking group Close Brothers was also in the black, up 1.6 per cent or 21.0p at 1,371p as it said it has made a 'very good start to the year', mainly on the back of strength in its banking division and higher trading income in market maker Winterflood.

But real estate group Great Portland Estates was under pressure, shedding 2.5 per cent or 15.5p at 612.0p after reporting a half-year loss and lowering its rental views due to the impact of the Brexit vote on the property market.

And engineering consultancy WS Atkins lost 1 per cent, or 17p at 1.643p as its headline pretax profits plunged 58 per cent in the six months to the end of September, although underlying profits rose by 14 per cent and it left its full year outlook unchanged. 

08.30: The Footsie ticked higher in choppy early trading, steadying after yesterday's falls following mixed showings from US and Asian markets overnight, with the pound mixed ahead of UK retail sales data later and key testimony from Janet Yellen.

In opening deals, the FTSE 100 index was up 6.3 points, or 0.1 per cent at 6,756.0, having closed 43.02 points lower yesterday as oil prices fell and the dollar rose amid mounting speculation that a US rate hike in December is on the cards.

On Wall Street, US blue chips ran into some profit-taking after four sessions of closes at record highs since the surprise election of Donald Trump as president, with the broader US indices also weaker.

But Asian shares nudged a touch higher today with US Treasury yields easier as a week-long surge that followed Trump's shock win subsided further, dragging the dollar off a 13-1/2 year peak set overnight.

Down: US blue chips ran into some profit-taking after four sessions of closes at record highs since the surprise election of Donald Trump as president, with broader US indices also weaker

The main focus today will be on Federal Reserve Chair Janet Yellen's testimony before the Joint Economic Committee in Washington, especially in light of Trump's election win, the rise in inflation expectations derived from his policy plans and markets now pricing in a US rate rise next month.

Hussein Sayed, Chief Market Strategist at FXTM, said: 'Most Fed officials are in favour of 25 basis points hike in December, and markets are almost certain that the Fed will pull the trigger in their next meeting, so a December rate hike is already priced into the dollar.

'Markets are more interested in Yellen's view on the economic effects of Trump's proposed fiscal policies, which include aggressive infrastructure spending and tax cuts.

'Maybe she will avoid commenting on many of the questions related to Trump's expected plans but if she indicates that aggressive fiscal policies mean tighter monetary policy than the dollar rally still has room to continue.'

Aside from Yellen's comment, traders will also have October US CPI inflation numbers to digest later today, with a rise to 1.6 per cent expected from 1.5 per cent in September.

Final eurozone October CPI is also due for release today, with an increase of 0.4 per cent expected to be confirmed, well below the European Central Bank's 2 per cent target.

On the domestic data front, after some fairly decent numbers on the inflation, unemployment and wages front in the past few days, UK October retail sales are expected to have risen by 0.5 per cent, much better than August and September's performances of 0 per cent and -0.1 per cent respectively.

On currency markets this morning, sterling firmed slightly against the dollar, up 0.1 per cent at $1.2458, but slipped 0.1 per cent lower versus the euro at €1.1629 as Brexit uncertainties held sway ahead of the UK data.

Among commodities, oil eased back again amid concerns over oversupply issues, with Brent crude down 0.4 per cent at $46.45 a barrel in early London trading.

Stocks in focus in London include:

ROYAL MAIL – The postal delivery group has raised its cost savings target after reporting higher mid-year revenue led by strong growth in its continental European parcels unit.

JOHNSON MATTHEY – The world leader in making catalysts for car emission-control devices has raised its interim dividend by 5 per cent to 20.5p as it reported that first half sales were also up 5 percent from a year ago.

VIRGIN MONEY - American billionaire Wilbur Ross has offloaded his remaining stake in lender Virgin Money for £171.5million. The firm said it increased its sale from 27 million shares to 53.6 million shares, which it sold at 320p each. That was almost double the shares his private equity firm WL Ross & Co had previously planned to sell.

TED BAKER – The fashion retailer has reported a rise in revenues for the 13 weeks to November 12, with growth achieved in both the retail and wholesale divisions, and it said it is confident of making further progress in the full year.

PREMIER OIL – The oil producer has agreed with its lenders to extend the repayment of its debt in exchange for some control over which projects the company can invest in.

INVESTEC – The South African financial services group has reported a 20 per cent rise in first half profits, buoyed by a strong showing at its asset management and wealth arm.

CLOSE BROTHERS – The financial services firm said it has started its new financial year with growth driven by its banking division, as well as increased activity in its asset management and market-making arms.

UK company news scheduled today includes:

Interims: Royal Mail, Johnson Matthey, Majestic Wine, Investec, Dart Group, WS Atkins, QinetiQ Group, Shanks Group, Great Portland Estates, Creston, Norcros, Great Eastern Energy Corporation, NewRiver Retail, Awilco Drilling (Q3)

Finals: Tracsis

Trading updates: Asda, Ted Baker, CRH, Premier Oil, Close Brothers, Safestore Holdings, TT Electronics, T Clarke, IFG, Marketing Group, Regional Reit

Ex-dividends to clip off 2.9 points FTSE 100 index (Bunzl, Imperial Brands, Marks & Spencer, J Sainsbury)

Economic news scheduled today includes:

UK retail sales at 9.30am

Council of Mortgage Lenders' monthly market commentary at 9.30am

eurozone final CPI at 10am

US CPI at 1.30pm

US Philly Fed manufacturing index at 1.30pm

US housing starts at 1.30pm

US weekly jobless claims at 1.30pm