Consumer activity less predictable: The historical link between household consumption expenditure and disposable income growth and supermarket revenue growth broke in Q318 and has remained so in the subsequent quarters. While disposable income has been growing and the wealth effect is seeing UK consumers spend more (the savings ratio has been falling), not only has this spend not been in the supermarket sector, it has been disproportionately less. While this gives cause for concern for the sector in the run up to the second Brexit deadline, we believe any impact to revenue will be under 5%. Tariff and supply chain issues manageable: Adding to the uncertainty on consumer spending activity are concerns over tariffs, supply chain disruption and possible labour shortages. That said, on tariffs, we note that while any imposition of tariffs will be widely reported, in individual consumer terms they will have little impact on shopping costs (up 4%). Similarly, while disruption to the supply chain could lead to shortages, particularly in fresh produce, which will draw media attention, we believe that the disruption will be temporary in nature (2% hit on revenue), with a new supply chain timescale quickly established. The sector is not directly affected by labour issues Kantar a useful guide: Kantar Worldpanel data provides useful monthly insights into market share and revenue growth of the main players in the UK supermarket sector, which otherwise would be difficult to obtain. That said, given that Sainsbury’s maintains that the data collected omits 20% of its revenue, we have compared the Kantar monthly data with the quarterly revenue growth numbers provided by the publicly-quoted companies. This illustrates that the Kantar market snapshots give a fairly accurate assessment of Tesco’s progress. The correlation with reported numbers is lower for Sainsbury’s and there is low correlation with Morrisons reported numbers. It would appear that the smaller the company’s market share, the less accurate the monthly growth numbers. Supermarket sector oversold - Buy: While share price weakness in stocks with UK exposure is not unexpected as the second Brexit date approaches, we believe that the supermarket sector in particular has been oversold, possibly on the un-quantified risks discussed above. We believe that it is, therefore timely to either be positioning to buy into or increase positons in the sector in anticipation of a conclusion to, or greater visibility on, Brexit. We upgrade Morrisons to Buy from Hold with a PT of 240p (up from 230p) while retaining our Buy call on Tesco (PT up to 270p from 255p) and Sainsbury’s (PT up to 280p from 265p). On valuation, we retain Ocado on Sell on an unchanged PT of 880p.