Live Markets: Europe's luxury sector more recession-ready than 2008

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07/06/2022 11:03

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    EUROPE'S LUXURY SECTOR MORE RECESSIO-READY THAN 2008 (0945
GMT)
    Fears of a recession are increasing for investors, and it is
particularly pertinent in the luxury sector given its historical
correlation with GDP growth. 
    But with its high-end consumers, tighter control of its
distribution via retail channels and pricing power, the sector
should weather a crisis better than in the past, according to
UBS equity analysts. 
    The sector is in a different spot than it was during the
2008/9 financial crash, the UBS note said, and will be better
able to weather a recession and the aftermath.
    Now luxury companies have more control over their
distribution channels, and fewer wholesale channels means fewer
promotional activities in the event of a slowdown. 
    An anti-corruption campaign in China and the pandemic also
led to efforts by luxury companies to convert more variable
costs into fixed ones, increasing responsiveness to demand
shocks.
    In a "GFC-type downturn", UBS sees Hermes  HRMS.PA , Ferrari
 RACE.MI  and LVMH  LVMH.PA  as the most resilient names in the
European luxury space.
    Meanwhile Tod's  TOD.MI , Ferragamo  SFER.MI  and Zegna
 ZGN  are seen as having the highest downside risks. 
    (Lucy Raitano)
    *****
    
    
    TECH NAMES LEAD EUROPE LOSSES (0748 GMT)
    The pan-European STOXX 600 index  STOXX  is down 0.4% at the
open, performing slightly better than indicated by earlier
futures. 
    Tech names are losing the most, down 0.96%  SX8P , and most
sectors are flashing red. Basic resources is gaining 0.4%
 SXPP . Oil and gas names are teetering on the edge, last up
0.1%.  SXEP 
    Interroll  INRN.S  shares are at the bottom of the STOXX
600, losing 6.5%, following a cut target price from Credit
Suisse. Wizz Air  WIZZ.L  shares are the second biggest loser
last down 2.8%.
    JD Sports  JD.L  is at the bottom of the FTSE 100  FTSE ,
with shares down 2.2% after the UK's competition watchdog said
on Tuesday it had provisionally found that the retailer, along
with Elite Sports and Rangers Football Club, fixed retail prices
of certain Rangers-branded clothing products.  urn:newsml:reuters.com:*:nL4N2XU1CF
    
    (Lucy Raitano)
    *****
    
    
    LOOKING AT THE BRIGHT SIDE OF MARKETS (0727 GMT)
    It's a pretty eventful day in markets. U.S. 10-year yields
are back above 3%, lifting the dollar to two-week highs. Then,
the yen plumbed new 20-year lows, Australia upped interest rates
by a half-point and the pound has fallen after a ruling party
confidence vote failed to dislodge Prime Minister Boris Johnson.
    U.S. and European equities are predictably under pressure.
    Yet, look behind the surface and there are some positives.
    The yield boost is due in large part, not to a fresh upsurge
in inflation fears, but in anticipation of the $96 billion in
new Treasury bonds hitting markets this week.
    More importantly, the China re-opening trade is in full
swing, with Beijing following Shanghai's example in further
relaxing COVID curbs.
    So Shenzen blue-chips are near seven-week highs, while U.S.-
listed Chinese shares are set for a fourth week of gains, lifted
too by thawing trade ties with Washington.
    JPMorgan (bullish on Chinese stocks) estimate that areas
accounting for some 10% of Chinese GDP are now affected by
lockdowns, versus 40% back in April.
    In nearby Japan, the yen's fall provoked verbal intervention
again from finance minister Suzuki -- its weakness was being
monitored with "a sense of urgency" he said -- a message diluted
immediately by Bank of Japan governor Haruhiko Kuroda's
reiteration that ultra-easy monetary policy would continue.
    But Kuroda is fast becoming an outlier. The Reserve Bank of
Australia wrong-footed investors with a 50 basis-point rate
hike, its biggest move in 22 years. Rates are now at 0.85%, and
raising them to 2.5% -- the level Governor Philip Lowe has
previously flagged as Australia's neutral rates -- means a
hectic tightening cycle is ahead  urn:newsml:reuters.com:*:nL1N2XU081.
    Finally, UK PM Johnson will remain in Downing Street for
now, having scraped through Monday's vote. The pound is down
0.7% as attention focuses again on the dire state of the
economy; another sharp fall in UK retail sales means investors
may be re-assessing how much longer the Bank of England can keep
raising interest rates  urn:newsml:reuters.com:*:nL8N2XT27C.

Key developments that should provide more direction to markets
on Tuesday:

-Japan household spending falls faster than expected
 urn:newsml:reuters.com:*:nL1N2XT17N
-Final PMIs everywhere
-Euro zone Sentix index
-Chile to hike interest rates 75 bps to 9%  urn:newsml:reuters.com:*:nS0N2X501C
-Central Bank of Argentina meets
-U.S. trade balance
-U.S. 3-year note auction
    
    
    
    (Sujata Rao)
    *****
    
    
    EUROPE FUTURES DOWN WITH FTSE FARING BETTER (0639 GMT) 
    European stock index futures are signalling drops at the
open today, with contracts for the Euro STOXX 50  STXEc1  down
0.7%. Germany's DAX  FDXc1  looks set to fall by the same amount
while FTSE futures are faring better, down 0.2%  FFIc1  and
supported by a drop in the pound.
    British Prime Minister Boris Johnson will seek to shore up
his position on Tuesday by setting out a raft of new policies to
senior ministers after he survived a confidence vote that
revealed the scale of the threat to his position.  urn:newsml:reuters.com:*:nL1N2XU09W
    The Reserve Bank of Australia delivered a
higher-than-expected rate hike.  urn:newsml:reuters.com:*:nL1N2XU081 A hawkish message
is expected from the ECB which will meet on Thursday and all
eyes will be on key CPI data due from the U.S. on Friday. 
    
    (Lucy Raitano)
    ***** 

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