The UK high street is under pressure like never before, under attack from rising constraints on consumer credit, an increasing inflationary pinch on pockets as a result of slow wage growth, and the growing threat of online retailers. Facing considerable pressure from short positions amassed by institutional investors, many onlookers have begun to weigh up when, not if, high street names will close.

However, Christmas 2017 trading updates from two of the largest companies on the high street have so far been extremely positive, delivering an impressive rebuttal to the negative outlook for bricks and mortar retail.

Last week, clothing retailer Next (NXT) saw its shares rally by a cool 10%, the beneficiary of a short squeeze (5.3% shares on loan) following a much better than expected Christmas trading update and guidance improvement from management.

Today, it was the turn of Morrisons (MRW) to report an impressive Christmas consensus beat, delivering like for like sales a whole percentage point ahead of expectations (2.8% vs 1.8%), this despite being one of the most shorted stocks on the London Stock Exchange – 11.5% of its shares being loaned out to short sellers.

But it’s not the only one of the big four supermarkets to appear on the top list of short positions.

Sainsbury’s (SBRY), reporting tomorrow (Weds 10 Jan), currently has an impressive short interest of 10.9%, while Marks & Spencer (MKS) and Tesco (TSCO), both reporting on Thursday (11 Jan) have short interests of 11.5% and 3.3%, respectively.

Whilst Tesco remains near the bottom of today’s pile after Kantar data showed its UK grocery market share fell in the final 12 weeks of the year, its peer’s impressive figures this morning have helped both M&S and Sainsbury’s climb to the top of the UK 100 alongside Morrisons.

In particular, the strong retail performance arising from Morrisons bricks and mortar presence may have helped to inspire fresh confidence that the UK consumer cast aside their budgetary shackles to spend heartily over Christmas.

Subsequently, Sainsbury’s has enjoyed a breakout from 6-month falling highs resistance to trade its best level since early October, and although M&S remains within 10% of its 18-month lows, not yet recapturing the 2-month highs traded after Next’s 2018 curtain raiser, the results of the past week could leave many of those short sharks revisiting their current positions.

Spare a thought too for Ocado (OCDO). The online supermarket, the third most shorted company on the LSE (its 14.1% short interest only behind perennial laggard Carillion and department store dud Debenhams) releases its Christmas trading figures on 6 February.

Morrisons reported a 10% increase in online sales, benefiting from its click/collect policy. Yet the company has failed to confirm a fresh 2018 high on today’s results, with investors waiting on the sidelines for any news of further warehousing deals.

All eyes will now be on the remaining Grocer and Retailer updates this week for confirmation that this was, indeed, a strong sales period, and that doom and gloom about the UK retail economy could be replaced with purchaser’s paradise.

Henry Croft, Research Analyst, 9 January