London open: Retail disappointment weighs on FTSE but Tesco bucks trend

At 0845 GMT, the FTSE 100 was off 0.4% at 6,881.74, while sterling was down 0.2% against the dollar at 1.2758 and 0.3% lower versus the euro at 1.1051.

Sentiment was fragile at the open as investors digested lower-than-expected Chinese inflation data overnight and failed US government shutdown talks. Meanwhile, trade relations between the US and China were still in focus after the Chinese Commerce Industry issued a statement saying that the "extensive, deep and detailed" three-day talks between the two countries had "laid the foundations " for their dispute to be revolved.

"The right kind of noise, then," said Spreadex analyst Connor Campbell, "but not exactly the definitive signs of actual progress the markets were hoping for given their movements in the last few days."

On a day packed full of retail updates that mostly failed to impress, it was perhaps apt that the latest sector figures from the British Retail Consortium and KPMG revealed the worst Christmas for the industry in a decade last month amid worries about Brexit and weak consumer confidence.

Total sales were flat in December compared to a 1.4% increase in the same month a year before, marking the worst performance since 2008. On a like-for-like basis, retail sales were down 0.7% from December 2017, when they rose 0.6% from the preceding year.

Helen Dickinson, chief executive of the BRC, said: "Squeezed consumers chose not to splash out this Christmas with retail sales growth stalling for the first time in 28 months. The worst December sales performance in ten years means a challenging start to 2019 for retailers, with business rates set to rise once again this year, and the threat of a no-deal Brexit looming ever larger."

On the corporate front, Marks & Spencer was in the red as it maintained full-year guidance as third-quarter group total revenue fell 3.9% to £3.04bn. In the UK, total revenue over the Christmas period fell 2.7% to £2.7bn on a constant currency basis. Clothing & home product like-for-like revenue was weaker than expected, down 2.4% against analysts expectations of 1.8%, but food was ahead of forecasts, down 2.1% against a consensus forecast decline of 3%.

Motoring and cycling product and service retailer Halfords skidded 22% as it warned that underlying pre-tax profit for its current financial year would be lower than it had recently guided, at between £58m and £62m.

Meanwhile, Card Factory slumped as it reported a 0.5% decline in LFL sales over Christmas and cautioned over the outlook, anticipating "FY20 will be another difficult year".

B&M European Retail Value was also on the back foot as it said group sales revenue in the third quarter rose 12.1% to £1.09bn, with UK sales revenue up 4.5% to £874.5m, but LFL sales down 1.6% against a strong prior year comparable.

Grocery sector market leader Tesco fared the best of its peers as it outshone its big four listed rivals over Christmas, with sales growth that exceeded the market and analysts' forecasts.

Group sales swelled 0.5% in the third quarter ending 24 November and 1.5% in the six-week festive period to 5 January, giving 19-week growth of 0.8%.

Richard Hunter, head of markets at Interactive Investor, said: "Tesco has defied the retail gloom and delivered a pick of the bunch performance.

"The supermarket behemoth has staged a strong recovery over several years, having previously admitted that it had taken its eye off the ball in its core UK market. There is a fair amount of light between then and now, with like-for-like sales both in terms of the third quarter but also the Christmas period showing continuing growth.

"The Booker acquisition is fast becoming a strategic triumph, with quarterly like-for-like sales having grown 11% and almost 7% in the festive run-up. Meanwhile, total sales are generally better, online sales are also improving and the company remains on track to give the European and Asian businesses the shot in the arm they require. As such, the group’s guidance is upbeat and the previously announced ambitions, such as the cost savings targets, seem to be within comfortable reach."

Adding to the gloom were downgrades of Burberry by Berenberg and Ted Baker by Goldman Sachs.

Outside the FTSE 350, Debenhams retreated after saying it was looking for fresh funding as like-for-like sales in the six weeks to 5 January declined by 3.4%.

Furniture retailer DFS eked out some gains, however, as it announced underlying sales growth of 10% in the five months to 30 December 2018 and said chief financial officer Nicola Bancroft was leaving the company after six years.

Mitchells & Butlers rallied after the pub operator reported a strong Christmas as it welcomed record levels of festive feasting from customers looking to escape their own kitchens or in-laws.

In broker note action, BBA Aviation was higher after an upgrade to 'buy' at Jefferies, while Cranswick rose on an upgrade to 'buy' at Liberum. Tullow Oil fell after a downgrade to 'equalweight' at Barclays.

BHP Group, Brewin Dolphin, Greencore, On the Beach Group, Paragon Banking Group, QinetiQ, UDG Healthcare, WH Smith and Workspace were among the companies whose stock went ex-dividend.

Market Movers

FTSE 100 (UKX) 6,881.74 -0.36%
FTSE 250 (MCX) 18,403.52 -0.06%
techMARK (TASX) 3,387.94 -0.18%

FTSE 100 - Risers

United Utilities Group (UU.) 768.60p 1.53%
Centrica (CNA) 132.60p 1.45%
Severn Trent (SVT) 1,862.00p 1.31%
Tesco (TSCO) 214.30p 1.18%
Intertek Group (ITRK) 5,012.00p 1.17%
Sainsbury (J) (SBRY) 275.35p 1.01%
SSE (SSE) 1,134.00p 0.89%
Vodafone Group (VOD) 154.04p 0.81%
BT Group (BT.A) 234.35p 0.80%
British Land Company (BLND) 546.60p 0.66%

FTSE 100 - Fallers

BHP Group (BHP) 1,603.80p -6.07%
Kingfisher (KGF) 225.20p -2.34%
Direct Line Insurance Group (DLG) 319.15p -2.28%
Burberry Group (BRBY) 1,752.00p -2.12%
Johnson Matthey (JMAT) 2,898.00p -1.86%
Rolls-Royce Holdings (RR.) 849.20p -1.80%
ITV (ITV) 135.64p -1.61%
Marks & Spencer Group (MKS) 273.30p -1.58%
Antofagasta (ANTO) 833.20p -1.58%
Smurfit Kappa Group (SKG) 2,230.00p -1.50%

FTSE 250 - Risers

Mitchells & Butlers (MAB) 280.00p 4.32%
Premier Oil (PMO) 79.28p 4.18%
Cranswick (CWK) 2,850.00p 3.64%
Contour Global (GLO) 190.00p 3.26%
Capita (CPI) 124.25p 3.20%
Sanne Group (SNN) 598.00p 2.40%
BBA Aviation (BBA) 234.60p 2.00%
Equiniti Group (EQN) 216.50p 1.88%
Coats Group (COA) 86.00p 1.78%
Pennon Group (PNN) 719.00p 1.70%

FTSE 250 - Fallers

Halfords Group (HFD) 217.00p -22.11%
Card Factory (CARD) 174.12p -10.52%
Ted Baker (TED) 1,997.00p -5.80%
Merlin Entertainments (MERL) 326.90p -5.11%
Paragon Banking Group (PAG) 404.20p -2.60%
QinetiQ Group (QQ.) 293.30p -2.27%
Superdry (SDRY) 534.00p -2.11%
HGCapital Trust (HGT) 1,795.00p -1.91%
Tullow Oil (TLW) 197.30p -1.79%
Ferrexpo (FXPO) 199.40p -1.77%