Economy

PARIS (Reuters) -Investors dived back into top luxury shares on Friday, adding some $70 billion to their market value as LVMH’s latest sales figures reassured investors about the sector’s resilience to economic headwinds, particularly in China.The buying spree helped recoup some of last year’s losses after China’s economic revival proved lacklustre following the lifting of COVID-19 restrictions.Shares in LVMH jumped as much as 11%, adding about $30 billion to its own stock market value and boosting peers of the French luxury giant including Kering (EPA:PRTP) and Hermes.That helped lift the pan-European STOXX 600 index to its highest level in two years. LVMH, home to brands including Louis Vuitton, Christian Dior, Moet Hennessy and Tiffany & Co (NYSE:TIF), posted a 10% rise in fourth-quarter sales on Thursday, driven by resilient demand for its high-end fashion over the end-of-year trading period.Investors had grown skittish about the industry’s prospects following LVMH’s previous report in October which showed its sales growth slowed to 9% after a long spell of routinely outpacing expectations with strong double-digit growth.At a results presentation on Thursday, LVMH Chairman and CEO Bernard Arnault said he was happy with the company’s current growth rate.With its latest report, LVMH “reassured – and coped nicely with a sharp slowdown in sales momentum” in the second half, Jefferies analyst James Grzinic wrote in a note to clients, adding the report should “steady nerves in the near term”.CHINESE DEMANDAppetite from Chinese shoppers for European fashion brands has been a key source of concern for investors in recent months, as a property crisis and high youth unemployment dashed hopes for a strong rebound, while the return of travelling Chinese beyond Asia has been slower than initially expected. Executives at LVMH said it was hard to measure Chinese demand as they have begun travelling outside of mainland China to places like Hong Kong and Macau, but noted that the group has twice as many Chinese customers as it did in 2019.”We’re not particularly concerned,” said LVMH chief financial officer Jean-Jacques Guiony.While large bus loads of Chinese customers are no longer arriving in Europe, the group is doing brisk business with wealthier Chinese customers, with LVMH’s biggest label Louis Vuitton reaching sales levels with Chinese in France and Europe of 70% of 2019 levels. The luxury goods industry had come to rely on fast growth in China, where over the span of five years, from 2017 to 2021, the luxury market tripled in size, according to Bain. Chinese luxury consumption is expected to reach 35-40% of the world’s total, with mainland China one of the leading global markets reaching a 24%-26% share by 2030, according to Bain.As the sector comes down from the high paced growth seen after the pandemic, the diverging fortunes of brands has come into view, with those catering to wealthier clients, like Hermes, better equipped for economic challenges than those pursuing turnarounds, like Burberry, which issued a profit warning earlier this month. But shares of Burberry also traded higher on Friday, up 2.9%.LVMH was the top gainer on the euro-zone blue-chip STOXX50E index.Friday’s gains added about $70 billion to the value of the top luxury and drinks companies, including LVMH, Gucci-owner Kering, Hermes, Pernod, Remy, Cartier-owner Richemont and Moncler, according to Reuters calculations. More

Under Britain’s existing trade deal with Canada, which effectively rolled over after Brexit, UK carmakers can until April export vehicles containing EU-manufactured parts to Canada without facing tariffs. “If UK car exports can’t use EU parts and components to avoid additional duties it creates a risk that tariffs, potentially charged on top of luxury goods taxes, could be reintroduced,” Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders, said in a statement.”Canada is an important market for UK car exports and, given the close ties between our two countries, the suspension of trade talks is especially disappointing and sends a signal that the UK’s world-class automotive products are not welcome in Canada,” he added.Britain on Thursday suspended talks on a free trade deal with Canada amid unhappiness on both sides about the lack of access to agricultural markets.Since leaving the EU in 2020, Britain has been trying to forge bilateral trade deals across the globe. It is currently negotiating a free trade agreement with India. More

Consumer prices in Latin America’s largest economy rose 0.31% in the month to mid-January, IBGE said, down from 0.40% in the previous month and below all estimates in a Reuters poll of economists, whose median forecast was for a 0.47% increase.Annual inflation reached 4.47%, sliding from 4.72% in the previous reading and also below the 4.63% expected by market participants.The fresh figures come as Brazil’s central bank is expected to lower its benchmark interest rate by 50 basis points for the fifth time in a row to 11.25% when its board meets on Jan. 30 to 31, although some do not see larger cuts as out of the question.”We expect a 50-basis-point rate cut next week, but can’t rule out bolder action as higher real rates are a threat to the (economic) recovery,” Pantheon Macroeconomics’ chief Latin America economist Andres Abadia said.Inflation in January was driven by higher food and beverage costs, IBGE said in a report, but a drop in transportation prices partially offset those increases.The statistics agency highlighted that airfares, which the government last month dubbed its biggest concern regarding inflation after a major jump in prices recently, finally decreased.President Luiz Inacio Lula da Silva is on a personal campaign to make air travel more affordable, with his government set to launch a fund to help finance airline operations and looking at ways to reduce jet fuel prices.But as the inflation decline in early January was driven by a particularly volatile item such as airfares, Capital Economics’ chief emerging markets economist William Jackson said he doubts policymakers will open the door to larger rate cuts.”Another 50-basis-point cut in the Selic rate at next week’s meeting is nailed on,” Jackson said. “And we suspect that the policymakers will retain their guidance for 50-basis-point cuts at the next few meetings too.” More

The Bangko Sentral ng Pilipinas (BSP) has raised its benchmark rate by a total of 450 basis points since May 2022 to rein in inflation, including an off-cycle hike in October last year. Rates, however, have been kept steady in its final two meetings in 2023. Eli Remolona, speaking at a reception event with private bankers, said a rate cut in the first semester would be too soon. The rate-setting monetary board will meet on Feb. 15 to review interest rates.The economy had likely performed better in the final quarter of last year compared to the third quarter, he said, a trend that could allow the BSP more room to raise rates. “If the growth is strong, that gives us a bit more room to hike,” Remolona told reporters.Headline inflation last month returned to target to 3.9%, but average inflation for 2023 stood at 6.0%, way above the central bank’s 2% to 4% target. Remolona said January inflation was likely to be a low number because of base effects. The BSP’s latest “risk-adjusted” inflation forecast indicates inflation could settle at 4.2% this year, slightly above its target range More

The New York-based company also reported record revenue for 2023, a year which many analysts feared could bring in a recession and crimp customer spending.AmEx, helped by its affluent customer base, has been able to navigate a tricky financial landscape more smoothly compared to some of its peers.High-earning individuals are less sensitive to inflation and the surge in borrowing costs, which has worried customers in lower-income brackets.”We have achieved what we set out to do, and we are ahead of where we thought we’d be on our journey,” American Express (NYSE:AXP) CEO Stephen Squeri said.However, some caution prevailed, with the credit card giant raising its loan loss provisions in the fourth quarter to $1.44 billion, compared with $1.03 billion a year earlier.Eleven rate hikes by the U.S. Federal Reserve have made borrowing expensive and increased risks of more defaults, especially as credit card debt is typically costlier than other loans.AmEx posted a profit of $2.62 per share for the three months ended Dec. 31, up from $2.07 per share a year earlier. Analysts had expected a profit of $2.64 per share, according to LSEG data.The company’s total revenue for the fourth quarter rose 11% to $15.80 billion. For 2023, its revenue rose 15% to $60.52 billion.It forecast 2024 earnings per share between $12.65 and $13.15, higher than analysts’ estimates of $12.41.The results come a day after peer Visa Inc (NYSE:V) posted upbeat quarterly results fueled by strong spending on travel and holiday shopping. However, smaller peers Discover Financial and Capital One saw lower profits in the quarter due to higher credit loss provisions. More

By Yoruk Bahceli and Naomi RovnickLONDON (Reuters) – Traders on Thursday piled on bets that the European Central Bank will cut interest rates from April as they took the view that policymakers are growing more comfortable with the inflation outlook. After the central bank kept its key rate on hold at a record 4%, ECB chief Christine Lagarde repeated twice in a news conference that it was “premature” to discuss rate cuts. But with the comments it made on inflation and wages, the bank was seen as appearing less concerned about inflation than before. It was noted that the ECB had removed a mention that “domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs,” from its decision, for instance.Markets took that as a sign the bank is becoming more convinced that wage growth, which it has flagged as the biggest risk to inflation, is slowing, analysts said.Interest-rate sensitive two-year bond yields fell sharply as traders doubled down on rate cut bets. They now expect more than an 80% chance of a first 25 basis-point (bps) rate cut in April, up from around 60% before the meeting.They anticipate 140 bps of cuts this year compared with around 130 bps before the meeting. “The key takeaway for markets is that April is a live meeting,” said Danske Bank chief analyst Piet Christiansen. “Markets are saying, if inflation and wage growth is coming in… they will turn around and guide to a policy rate cut in April,” Christiansen added, noting the rally in bonds reflected a lack of ECB pushback against market rate bets.German and Italian two-year bond yields dropped around 10 bps in their biggest fall in nearly two weeks. The euro fell almost 0.5% to $1.0835.While rate cut expectations supported bonds, investors cautioned there was little room for further falls in yields, which dropped sharply late last year. “We think there’s been enough of a decline in yields for the moment,” said Florian Ielpo, head of macro and multi-asset portfolio manager at Lombard Odier Investment Management.Ielpo said his firm was underweight bonds and overweight equities, which he said have yet to price in the support to earnings from lower rates. Lagarde reiterated that the ECB would remain data-dependent and said she stood by her comments last week pointing to a summer rate cut.She has also previously said she expects enough wage data by “late spring” and chief economist Philip Lane has wanted to see data due in April, which would rule out easing before June.ABN AMRO (AS:ABNd) and Danske Bank stuck to their call for a June cut on Thursday.”The market is anticipating quite rapid disinflation from here and the ECB is looking at past data and saying we are not out of the woods yet,” said Dario Perkins, managing director of global macro at TS Lombard. Another risk is the January euro zone inflation print due next Thursday, which could set the tone for how price pressures evolve this year. RISK OF POLICY ERRORInvestors cautioned that waiting too long to cut rates risked a policy error where the ECB keeps policy too tight for an economy that is weakening. German business morale unexpectedly worsened in January, declining for the second month in a row as Europe’s largest economy struggles to shake off a recession.ECB projections have long signalled higher inflation than markets. The ECB forecasts 2.7% inflation this year, versus 2.4% expected by a Reuters poll. Similarly, it has expected higher growth than analysts, seeing the economy expanding 0.8% this year. A Reuters poll puts economic growth at just 0.5%.”Cutting rates in June means taking the risk of being too late because when you look at growth in the euro zone it is already muted, when you look at inflation it really has declined significantly, so by looking at wages the ECB is taking the risk of falling behind the curve,” said Valentine Ainouz, head of global fixed income strategy at the Amundi Investment Institute. Some banks have flagged the possibility of the ECB having to cut rates by larger, 50 bps increments.Citi bank said in a note earlier this week that the later rates fall, the further they may have to be cut to compensate for overtightening. It reckons 50 bps rate cuts are a possibility and rates could fall towards 1.5% in 2025.”Disinflation looks much more rapid in the euro zone than in the US… the ECB is taking the risk of cutting rates too late and that is not completely priced by the market,” said Amundi Investment Institute’s Ainouz. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.There was a slight gasp among my headset-wearing neighbours in the World Economic Forum’s congress hall when Javier Milei blamed all political movements except his own for the west’s woes.“Whether they proclaim to be openly communists, fascists, Nazis, socialists, social democrats, national socialists, Christian democrats, neo-Keynesians, progressives, populists, nationalists or globalists, there are no major differences. They all say the state should steer all aspects of the lives of individuals,” Argentina’s libertarian president told the well-heeded crowd last week.Corporate executives exchanged amused gazes. There was sporadic laughter. It was only one among many astounding lines in Milei’s 20-minute speech in Davos — his first trip abroad since his election in November. WEF participants, whom the economics professor labelled the “heroes” of the capitalist world, had been “co-opted” by neo-Marxists, radical feminists and climate activists, he warned.The address drew substantial applause. Walking past me towards the exit, one European private equity veteran confided in being “impressed”. Later that day a fund manager insisted that beneath Milei’s provocative veneer lay “some truths”. The Davos elite had been lectured about losing its way and had loved it.It was not just Milei’s staunchly pro-business stance that struck a chord. “People are intrigued because he managed to get elected on an austerity platform, by telling voters he would cut their benefits and state subsidies,” said one WEF attendee.The warm reception echoed positive comments from the IMF, a big creditor to Argentina. The Washington-based institution agreed to disburse funds after the Milei administration sought to slash the deficit and devalued the peso. The new administration “has moved boldly to correct several of the misalignments that are there in the economy”, the IMF’s deputy managing director Gita Gopinath said in Davos.JPMorgan’s number two Daniel Pinto, an Argentine and WEF regular, was also bullish. Milei’s administration was “addressing all the right things in the economy”, he said, hoping that the measures could bring “an end to 80 years of economic deterioration”.A few participants likened the business elite’s support to that of Wall Street for Donald Trump, triggered by the prospect of free market policies. But somehow Milei — who was seen brandishing a chainsaw during his campaign to symbolise his plan to shrink the state — seemed a more credible deregulation champion because of his academic background, one suggested.Others speculated that some of the praise might be part of a cynical move for a share of Milei’s planned privatisations of dozens of state-owned companies. “I’ve been surprised by how positive some bankers are about Milei’s ‘economic theories’,” said Allianz chief economist Ludovic Subran after the speech. “I am wondering if it’s not pure vested interests — the smell of a big privatisation wave coming and its investment banking mandates.”But, perhaps naively, many found comfort in the belief that Milei’s most radical ideas would be tempered by a grown-up team around him. A private meeting between CEOs and foreign minister Diana Mondino, chief of staff Nicolás Posse and economy minister Luis Caputo made a good impression, according to one executive in attendance. “They came across as professionals,” he said. Sure enough, back home from the Swiss Alps, the Argentine president was forced to make concessions on his sweeping reform bill currently being debated in congress, in which Milei’s party holds a minority of seats. The privatisation of state-owned oil major YPF no longer features in it — a sign that the libertarian politician might have to compromise with the neo-Marxist forces he was so quick to decry in Davos. More

U.S. equity funds saw net withdrawals of $3.04 billion in the week, the smallest in four weeks, as a Wall Street rally, led by strong tech sector gains from upbeat forecasts by TSMC and Super Micro Computer (NASDAQ:SMCI), tempered the outflows.U.S. value funds saw $2.76 billion worth of net disposals, the largest outflow in five weeks. Conversely, growth funds attracted $1.42 billion worth of new capital, marking their first weekly inflow in four weeks.The technology sector, in particular, witnessed substantial investor interest, with a net inflow of $1.27 billion — the highest in six weeks. Meanwhile, the healthcare and industrial sectors experienced net outflows.U.S. bond funds remained in demand for a fifth consecutive week, witnessing purchases worth a net $3.4 billion.U.S. short/intermediate government & treasury, and short/intermediate investment-grade funds received about $3.02 billion and $1.12 billion worth of inflows, respectively. On the contrary, inflation-protected funds had $375 million worth of outflows.Investors meanwhile, withdrew a net $9.06 billion from U.S. money market funds, extending net selling to a second straight week. More