This feels like the start of the year proper for financial markets and, even with trading rooms back at full capacity, there’s still no reason to sell equities. In fact, a thawing of relations between North and South Korea, and Theresa May’s imminent cabinet reshuffle should limit any downside seen first thing Monday.
With Brexit only a year away, political events in 2018 will define not only how the UK trades with Europe, but the rest of the world, for years and likely decades to come. A reshuffle that ends Tory in-fighting and brings political certainty can only increase Britain’s chances of avoiding a cliff edge in March 2019.
A rush of corporate updates will keep traders glued to their screens this week. Modest valuations and market-leading dividend yields have already attracted buyers to the housebuilding sector, but latest numbers will need to soothe concerns about falling house prices in London and a slowdown elsewhere.
The jury is still out on the high street retailers after last week’s mixed bag from Next (NXT) and Debenhams (DEB). After so many failures, M&S (MKS) is under pressure to provide evidence that a five-year turnaround plan is working. Sales growth is key here and, if the current high-profile executive team can’t achieve success, there seems little hope. At least the share price is currently underpinned by a generous dividend.
Signs are not great if Mothercare's (MTC) quarterly update is any guide. Like fellow struggler Debenhams, Mothercare has had an awful Christmas. Fewer shoppers popped into its stores in the final three months of 2017 and those that did spent less money, which explains a 7.2% plunge in UK like-for-like sales. It was the same online where sales slumped by 6.9%. This a truly terrible set of numbers from Mothercare.
We’ll get a better idea of exactly how Donald Trump’s tax reform might impact US corporate profits when earnings season kicks off this week. Don’t worry about the big one-off charges as businesses revalue deferred taxes and take a hit on offshore earnings. Tax reform will still deliver a significant boost to company profits and remain an important lynchpin for the bull market in 2018.
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