WITH THE great freeze ongoing this morning, a lot of people will not be too happy struggling through the cold to work. 73 per cent of companies had staff off work last week, and many more undoubtedly will have failed to get to work today.
The costs of cold weather to the economy are far from small – last year’s unusually severe winter was at least partially blamed for Britain’s lethargic recovery, with growth of just 0.2 per cent in the first quarter of 2010. So far, this year’s winter is looking almost as bad.
So what should spread betters look out for with the cold weather?
Certainly, retailers are likely to be the biggest losers of the cold snap. Many retailers take the bulk of their profits in the run up to Christmas, and if the snow forces people to stay at home, they could lose a lot of money.
Visits to shopping centres fell by a third last week, while footfall overall is down by 21 per cent. As Alastair McCaig, of WorldSpreads, said: “The last thing retailers need right now is three days shopping lost”.
One particularly high profile victim is the sports retailer JJB Sports, which has seen the cold weather compound its deep cash flow problems – its share price fell by 18 per cent on Thursday followed by 5 per cent on Friday, and it may still have further to go.
However, as Manoj Ladwa, of ETX Capital, pointed out: “Online retailers might pick up a little bit.” Snow might stop people visiting shops, but it will not stop people from Christmas shopping – they’ll just do it from their computers.
It might be a good idea to go long on online retailers then - the fashion retailer ASOS.com might do quite well, for example.
But while retailers are suffering, gas utilities are probably delighted.
Demand for gas is 100m cubic metres above ordinary levels for this time of year, while many suppliers are increasing prices. British Gas expects to make £700m this year, and it could make even more if unseasonably high demand continues. It is raising prices by 7 per cent from 10 December. Gas suppliers’ profit margins have increased by 40 per cent over the last eight weeks, undoubtedly helping along BG Group’s share price, which increased by nearly 2 per cent last week. If the weather stays cold, the rally should carry on.
Traders should be wary of buying too heavily into utilities, however. Spectacular profits have attracted the attention of the regulator, Ofgem, which launched an investigative probe on 27 November to discover whether companies are unnecessarily exploiting their customers. If they introduce more stringent regulation, then the energy companies could well see their share prices fall back again.
Unfortunately for spread betters, perhaps the most in-demand snow commodity – sledges – isn’t that readily tradeable. B&Q has just ordered 10,000 to meet increased demand. Unlike most retailers, they must be hoping that the snow will last.