Morning Note: Market news and an update from Burberry.
Market News
US Core CPI eased to 3.9% in December, the slowest annual pace since May 2021, and in line with the 3.8% expected by the market. The 10-year Treasury yields rose at first but has settled back to just below 4%.
Ahead of the start of the banking sector earning season, US equity markets were little changed last night – S&P 500 (-0.1%); Nasdaq (flat). The market is look at what the prospect of Federal Reserve easing means for the bank’s loan portfolios and the outlook for deposit rates.
China’s exports posted their first annual decline since 2016, while CPI and producer prices also slipped in December. The weak price data boost the odds of a rate cut this month, Bloomberg Economics said. This morning in Asia, markets were generally muted in response: Hang Seng (-0.2%); Shanghai Composite (-0.6%). Once again, the exception was Japan which continued its strong start to the year: Nikkei 225 (+1.5%). The yen weakened as Bank of Japan officials are expected to discuss cutting their forecasts for inflation and growth when they meet this month, people familiar said.
UK GDP rose by 0.3% month on month in November, faster than expectations of 0.2% growth. Sterling trades at $1.2767 and €1.1633, while the FTSE 100 is currently trading 0.8% higher at 7,643. Christine Lagarde said the ECB will start lowering rates once it’s convinced inflation is headed back to its 2% goal.
Brent crude is up more than 2% to $79.20 per barrel, extending gains from yesterday as a deepening geopolitical crisis in the Middle East put a risk premium on oil prices. Gold also edged higher to $2,037 an ounce. Tesla will suspend most EV production at its Berlin factory because of component shortages caused by the Red Sea conflict, Reuters reported.
Source: Bloomberg
Company News
Burberry Group has today released a weak trading update covering the third quarter of its financial year to 30 March 2024. In response, the shares have been marked down by 7% in early trading.
Burberry is a global luxury fashion retailer headquartered in the UK. At 30 December 2023, Burberry had 225 retail stores, 139 concessions, 57 outlets, and 32 franchise stores, excluding pop-up stores. The group is currently transitioning to a ‘new modern British luxury creative expression for Burberry’ which started appearing in stores in early Autumn. Today’s statement highlights the group is still in the early stages of executing on this, and it has become more challenging against the backdrop of slowing luxury demand.
In the 13 weeks to 30 December, Retail revenue fell by 2% at constant exchange rates to £706m. Comparable sales from stores trading over equivalent time periods (i.e., excluding the impact of permanent store openings and closings, or those closures relating to refurbishments) fell by 4%. The contribution from new space was 2%.
The strongest performance was in Asia Pacific (+3%) and was made up of: Mainland China (+8%), South Asia Pacific (+2%), Japan (+9%), and South Korea (-10%). Americas declined by 15%, while EMEIA was down 5%.
There was no update on the group’s financial position. We note at 30 September 2023, the balance sheet was very strong, with net debt/adjusted EBITDA of 0.9x, at the upper end of the group’s target range of 0.5x to 1.0x. The group has been buying back its own shares, with the current £400m programme completed in October.
The statement highlights the group remains confident in its strategy and is committed to achieving its medium-term target of £4bn revenue. However, the slowdown in luxury demand is having an impact on current trading – the company experienced a further deceleration in its key December trading period. In this context, the company now expects adjusted operating profit for the financial year ended 30 March 2024 to be in the range of £410m to £460m, below previous guidance and around 17% below the current consensus forecast of £522m.
Source: Bloomberg