Next is top of the FTSE 100, as Nvidia reaches another record

Next, the retailer, is the top performer on the FTSE 100 this morning and is higher by more than 4% after it posted a strong Christmas trading update and lifted profit guidance yet again. The market was not deterred by Next’s concerns around higher costs from the Budget, which bodes well for the UK’s largest retailers.

Next was the first of the main retailers in the UK to announce their Christmas trading figures and it has gone some way to easing fears about a weak consumer in the all-important ‘golden quarter’. Sales in the 9 weeks up to Christmas were higher by 5.7% on an adjusted basis. Next has a habit of raising its profit forecast, and it did so again today.  Full year pre-tax profit expectations were lifted to £1.08bn. The all-important golden quarter saw a major shift in consumer habits, and Next reported less footfall in its shops, retail sales fell by 2.1%. In contrast, online sales in the UK surged by 6.1%. This suggests that retailers with the biggest online presence will outperform this winter, and bodes well for Next’s competitors including M&S.

Next: concerns for the future fail to dent investor enthusiasm

Overseas online sales were also up by a third in Q4, although it expects overseas sales and UK sales to moderate in the coming year. 2024 was a good year for Next, however, its forecast was less bright. The company sees pretax profit at £1.046bn in the next 12 months, which is 1% below consensus and suggests a decline in profit levels vs the year before. This figure also takes account of £67mn in additional wage costs, an 8% jump, caused by changes included in the Labour budget. The company said that it cannot afford to absorb these prices, which means higher prices for the consumer in the year ahead, not something that the Bank of England wanted to hear. The company was scathing about the increase to employer national insurance included in last year’s Labour government’s Budget. Next added that this move will likely increase inflation and it could dent employment. This is further eroding the Labour government’s claim that it is the government of growth. Next’s results highlights some of the economic angst that has gripped the business community and weighed on business and economic confidence in the UK since the Labour government came into office. However, Next’s share price action suggests that the market is confident in Next’s ability to weather this storm, and it may also show some relief that the impact from the Budget was not as bad as expected.

Next’s results have buoyed the UK retail sector, and M&S, which reports its Christmas trading update on Thursday, is also one of the top 20 performers in the FTSE 100 so far on Tuesday. The consumer discretionary sector is a bright spot in an otherwise weak open for the UK index. This comes even though risk sentiment surged at the start of the week, and European stocks rose sharply.

EUR/USD: parity is put on ice for now, but it all depends on the ECB

The market is taking a breather on Tuesday, and European stock indices are also mostly lower as we wait for European inflation. So far, national inflation readings have been mixed. German inflation was higher than expected, while French inflation was weaker. The annual rate of CPI in France was 1.3%, defying forecasts of a rise to 1.5%. The monthly rate was 0.2%. Thus, while inflation is expected to rise in the currency bloc for December, a rise to 2.4% may be too rich after French inflation failed to budge last month. This is weighing slightly on the euro, and EUR/USD has backed away from the high so far this week around $1.0420. For now, this pair is holding above $1.04, however, the future direction could depend on how Eurozone CPI impacts Eurozone interest rate expectations. The market has scaled back January rate cut expectations. A 25bp rate cut is now expected, last week more than 25bps were expected. The market is still expecting Eurozone interest rates to end the year at 1.88%, however, this could move back above 2% if we get an upside inflation surprise that dents some of the ECB’s dovishness.

Nvidia: can anything stop the juggernaut?

Elsewhere, there was a renewed focus on the AI trade at the start of the week, and the Nasdaq surged on Monday. This has widened the gap between the S&P 500 market weighted index and the equal weighted S&P 500. Nvidia’s latest raft of new chips, software and services boosted the chip giant’s share price by 3% on Monday and pushed the share price to a new record high. It will be worth watching Nvidia’s price action on Tuesday. Will the raft of new products lead to another leg higher in the share price, potentially above $150? Some are concerned that tech stocks are too highly valued, however, a forward P/E ratio of 38x earnings is not that high for a tech company, analysts expect earnings and revenues to expand and new products beyond the Blackwell chip could also boost sales down the line. Thus, tech stocks may continue to lead the charge higher in US equity markets as we move through January.

It has also dashed hopes of a broadening out of the US stock market rally. However, more talk about Trump scaling back his tariff plans could see European shares play catch up, as they reacted positively to news that the new US President will focus his tariff plans on critical imports only.