Retail had regained favour in the run-up to the reporting season, but the first set of updates brought a slew of bad news.

Next posted a fall in first-half profits and chief executive Simon Wolfson was pessimistic about the economic outlook. The City welcomed Next’s effective management of tough conditions, which enabled it to beat expectations, but remained cautious.

Pali International said: “The problem is that although Next is doing great things in terms of store design and ranging, the Next customer is right in the firing line of the credit crunch.”

Landsbanki said: “Retail demand is likely to remain very weak, clothing remains over-supplied and the weakness in sterling is likely at the very least to choke the scope for gross margin gains.”

Tycoon Mike Ashley’s Sports Direct managed to maintain flat quarterly sales and gross profits, but that followed a very difficult last year. Kaupthing said: “Bearing in mind a back to basics approach with management focusing on costs, we suspect that the decline at EBIT level is modest so far this year.”

Panmure Gordon argued: “JJB is a better play on the sports retail industry, with more upside to profits, partly a reflection of its underperformance over the past five years.”

HMV’s shares rose after the group reported a group like-for-like rise. Dresdner Kleinwort described performance as “creditable” and said: “HMV continues to hold or gain market share in all categories and should have strong momentum going into Christmas.” Numis stuck to its hold stance, but saw upside potential.

Sainsbury’s was downgraded to market-perform by Bernstein because its shares were trading above its 360p target. The broker said: “Valuation upside now relies increasingly on the emergence of a takeover bid that our analysis suggests would be challenging in the current environment.”

JP Morgan also downgraded Sainsbury’s, to underweight, and warned that Tesco must react to the threat from Asda and hard discounters such as Aldi as food inflation changes the behaviour of shoppers.

Jeweller Signet was expected to move its primary listing to the New York Stock Exchange yesterday. It looked likely that there would be another farewell of sorts, from Carphone Warehouse, which was poised for demotion from the FTSE 100 index, bringing retail’s representation on the blue chip index to its lowest in memory.