John Dance

Member Article

Tesco plummets on poor Christmas and profit warning

Shares in Tesco plummeted this morning, causing shockwaves through the British retail sector.
What has been a staple stock amongst UK investors for years was discarded followings its Christmas
trading update. The reaction was provoked by a profit warning, following one of the worst Christmas
periods for decades with like-for-like sales over the 6 weeks down 2.3%. Despite oversees sales
seeing strong growth, the UK, which accounts for two thirds of its revenue, was hurt by supermarket
price wars and the retailers stated that the full year trading profit will be towards the lower end of
market expectations. Investors also learnt that significant investment will be required and profit
growth will be limited in 2013, shares tumbled to end the day down 16% at 232p.

At the other end of the spectrum, RBS was one of the largest gainers on the index amid news that
the bank is to cut its investment banking division. The restructuring will see the group exit its loss
making equities, corporate broking, equity capital markets and M&A businesses, its most capital
intensive, and focus on fixed-income. Investors welcomed the changes with the bank finishing the
day up 5.6%.

Spain sold a total of €10.4 of short dated debt this morning, including 3 year paper at an average
yield of 3.384% (much improved from its last auction). It was very swiftly followed by an Italian
auction, which raised €8.5 billion of 12 month bills, at an average yield of 2.735% (form closer to 6%
in December). The news was welcomed by the markets, with the yield of longer dated peripheral
European debt contracting in a sign that investor sentiment with regards to the ability of the nations
to pay the debt back was improving, albeit from highly pessimistic levels. Equity market experienced
a slight uplift, with sentiment improving such that not even eurozone industrial output data, which
posted its first year-on-year fall since 2009 in November, could dent confidence.

What did though was US data which, whilst being positive of late, showed today that initial jobless
claims increased, with the number of new people filing for unemployment benefits rising to 399,000
last week. The increase of 24,000 was comfortably more than had been anticipated.

The FTSE 100 fell into negative territory amid additional European concerns, losing 8.4 points
(0.15%) to finish the day at 5662.

This was posted in Bdaily's Members' News section by John Dance .

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