Morning Note: Market news and an update from Burberry.

Market News

A late rally lifted US equities to new highs last night – S&P 500 (+0.5%); Nasdaq (+0.2%) – boosted by comments from US President Donald Trump hinting at a potentially softer approach toward tariffs on China, saying he would rather not have to use tariffs against the world’s second-largest economy. Trump also said the Fed should cut rates to ease price pressures on Americans, adding that he plans to have a talk with Jerome Powell “at the right time.” The dollar weakened, while the 10-year Treasury yields 4.62%. Gold rose to $2,775 an ounce and is closing in on an all-time high.

In Asia this morning, the yen strengthened after the Bank of Japan raised interest rates to 0.5% as expected, leaving the Nikkei 225 down a touch (-0.1%). A key CPI gauge accelerated to 3% in December, the highest since 2023. Bloomberg Economics is forecasting two more hikes in April and July. Elsewhere, stocks followed the US lead: Hang Seng (+1.7%); Shanghai Composite (+0.7%).

The FTSE 100 is currently trading 0.2% higher at 8,586, a new high. UK consumer confidence dropped this month to the lowest in more than a year, GfK said. Its outlook survey also worsened from December. Gilt yields held steady at 4.64%, while Sterling trades at $1.2410 and €1.1830.

Brent Crude fell to $78 a barrel on Trump comments that he will push Saudi Arabia and OPEC to lower oil prices.

Bitcoin trades of $105k as President Trump signs an executive order on crypto to develop national digital asset stockpile.

Source: Bloomberg

Company News

Burberry Group has today released an update covering the third quarter of its financial year to 30 March 2025. Trading was much better than expected and the company has highlighted it is now more likely its second-half results will broadly offset the first-half adjusted operating loss, notwithstanding the uncertain macroeconomic environment. In response, the shares have bounced by 15% in early trading.

Burberry is a global luxury fashion retailer headquartered in the UK. At 28 December 2024, Burberry had 235 retail stores, 143 concessions, 54 outlets, and 33 franchise stores, excluding pop-up stores.

In response to a period of poor trading which coincided with an attempted strategic transition to a ‘new modern British luxury creative expression for Burberry’, the company is acting with urgency to stabilise the business and position the brand for a return to sustainable, profitable growth, supported by strong cash generation and balance sheet strength. A new CEO has been appointed, and the group recently implemented a number of actions to drive ‘Burberry Forward’, generating an improvement in brand desirability, an acceleration in the performance of outerwear and scarves, and an uplift in conversion. The company is also driving operational efficiencies and cost savings to offset the impact of inflation. Management recognise it is still very early in the company’s transformation and there remains much to do.

However, early signs are encouraging. In the 13 weeks to 28 December 2024, Retail revenue fell by 3% at constant exchange rates to £659m. 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%. This was much better than the market expectation for a 12% decline. The contribution from new space was 1%.

Almost all regions suffered a downturn in comparable store sales. Asia Pacific (-9%), made up of Mainland China (-7%), South Asia Pacific (-19%), Japan (+4%, the only riser in Asia), and South Korea (-12%). Elsewhere, Americas rose by 4%, while EMEIA was down 2%.

There was no update on the group’s financial position. We note at 28 September 2024, financial gearing stood at 2.4x net debt/adjusted EBITDA, well above the upper end of the group’s target range of 0.5x to 1.0x. The increase in gearing was driven by lower profitability, working capital outflow, and the share buyback programme. In light of current trading, the company has already decided to suspend the dividend.

In the current financial year to end March 2025, retail space is expected to be broadly stable, while wholesale revenue is forecast to decline by around 35%.

Source: Bloomberg