Burberry warning sends shiver through luxury sector

LONDON - British fashion brand Burberry issued a profit warning on Tuesday, the clearest sign yet that slowing economic growth in China and Europe's debt crisis are bringing a boom in demand for luxury clothes and accessories to a halt.

The company, famous for its raincoats lined with a distinctive camel, red and black check pattern, said it expected underlying full-year profit to be around the lower end of market forecasts.

That sent its shares down 19 percent and dragged down rivals including LVMH, the world's largest luxury goods group.

China has been one of the main drivers of a boom in luxury brands, with consumers eager to buy designer labels, including Burberry's raincoats and other high-end fashions.

But luxury goods firms' shares have wobbled in the past few months over worries about Europe's sovereign debt crisis and slowing growth in China and other emerging markets, where demand for designer brands has managed to offset weaker trends in the United States and Europe.

Morgan Stanley analysts said in a note to clients on Tuesday that Burberry's statement was the first major disappointment for European luxury companies.

Shares in France's LVMH and PPR were both down 4 percent, while Switzerland's Richemont was down 3 percent.

Burberry said comparable store sales didn't grow in the 10 weeks to September 8, the bulk of its financial second quarter, compared with a year earlier. Total sales rose 6 percent, underpinned entirely by new store openings.

That represented a marked slowdown from first-quarter retail revenue growth of 14 percent and comparable store sales up 6 percent.

The company reported a fall in first-quarter sales growth in July, as China slowed.

"Given this background, we are tightly managing discretionary costs and taking appropriate actions to protect short term profitability," Chief Executive Angela Ahrendts said on Tuesday.

Analysts had expected Burberry to post pretax profit for the year to March 2013 of between 407 and 451 million pounds ($652-$722 million), with a consensus of 433.21 million, according to a Reuters poll of 18 analysts.

"Burberry's latest results show that even the top end of the market isn't functioning at full capacity in the current economic climate," said Jaana Jatyri, CEO of fashion forecasting company, Trendstop.com.

"The global economic crisis is dragging on and the longer it drags on the less confident even wealthier individuals become. Unfortunately, people lacking confidence do not shop at Burberry."

source: interaksyon.com

World Stock Markets Fall as Europe Worries Rise

PARIS (AP) — Evidence that Europe's debt crisis is continuing to drag down economies both on the continent and in the U.S. pushed world stock markets lower Tuesday ahead of an emergency conference call about the crisis.

A private discussion among finance ministers and central bank governors from seven of the world's most industrialized powers is expected later in the day. U.S. officials have said Washington expects more action to strengthen the European banking system in the next two weeks before a meeting of the Group of 20 major economies in Los Cabos, Mexico, later this month.

Concerns about Europe — and particularly the worry that the sorry state of Spain's banks may force the country to seek a bailout — have increasingly weighed on the economies of both the U.S. and the countries that use the euro. Spain, strapped for cash, might have to tap European Union rescue funds, but it is reluctant to do so because such aid would come with strict conditions.

Meanwhile in Cyprus, the central bank governor said the country is struggling to find €1.8 billion ($2.2 billion) to inject into its second-largest lender, Cyprus Popular Bank, by June 30. That means it is increasingly likely to have to accept EU rescue funds.

The crisis has stopped a nascent U.S. economic recovery in its tracks and refused to let Europe get off the ground. U.S. factory orders fell back on Monday, dovetailing with the recent weak jobs data, while a European business survey sounded a dismal note Tuesday. Markit's Purchasing Managers' Index for the eurozone hit a near-three-year low in May. Even Germany was below the 50 mark, which indicates a contraction.

Stocks in Asia and Europe rose gingerly in early trading Tuesday, but the bad news soon proved overwhelming.

Germany's DAX retreated 1 percent to 5.922, while France's CAC-40 eked out some gains, rising 0.4 percent to 2,967. Markets in London were closed for a second day for the Queen's Jubilee celebrations.

The euro fell back 0.6 percent to $1.2429

U.S. markets also looked set to open lower. S&P futures fell 0.2 percent to 1,271, while Dow futures edged down 0.03 percent to 12,059.

"The eurozone is being buffeted by major headwinds, notably including increased fiscal tightening in many countries, squeezed consumer purchasing power and markedly rising unemployment," said Howard Archer, chief European economist for IHS Global Insight.

"Meanwhile, the heightened Greek and Spanish tensions are magnifying the problems by weighing down on already weak and fragile business and consumer confidence, adding to uncertainty about the outlook and holding back business and investment decisions."

Earlier in Asia, stock markets rose following a move by Chinese authorities to boost consumption.

Japan's Nikkei 225 index rose 1 percent to 8,382 after suffering sharp losses the day before. Hong Kong's Hang Seng added 0.4 percent to 18,259.03 and South Korea's Kospi gained 1.1 percent to 1,801.85.

Mainland Chinese shares were mixed. The benchmark Shanghai Composite Index gained 0.2 percent to 2,311.92. The Shenzhen Composite Index lost 0.2 percent to 937.39.

With economies faltering, energy prices dropped, amid expectations demand would be hit. Benchmark oil for July delivery fell 10 cents to $83.88 per barrel in electronic trading on the New York Mercantile Exchange.

source: nytimes.com

Oil dips in Asia on eurozone debt woes

SINGAPORE—Oil prices eased in Asian trade Friday on growing fears about the eurozone's debt troubles but the falls were tempered by worries about the nuclear standoff between the West and Iran, analysts said.

New York's main contract, West Texas Intermediate crude for delivery in July was down two cents to $90.64 per barrel while Brent North Sea crude for July shed 23 cents to $106.32 in the afternoon.

"Oil prices continue to decline as macroeconomic sentiment continues to weaken, with the lack of concrete measures on the part of European policymakers to address the Greek issue," Barclays Bank said in a commentary.

It said the lack of a policy response to Greece's possible exit from the euro was "weighing significantly across all risk assets."

Shortly after a European Union summit that ended Thursday failed to produce a conclusive plan on dealing with Athens, a May survey of eurozone business confidence showed the sharpest monthly fall for nearly three years.

A Greek general election set for June 17 is expected to result in a win for anti-austerity parties who have said they will tear up a bailout deal with the European Union and International Monetary Fund.

Such a move would in effect lead to the country's euro exit, which analysts warn could have disastrous knock-on effects for the global economy.

Investors are also keeping close watch on the nuclear row between Iran and the West after talks between the two sides ended on Thursday with few results except to fix a date to meet again next month.

P5+1 nations–Britain, China, France, Russia and the United States plus Germany–had laid out a new package of proposals to persuade Iran to suspend uranium enrichment, which was flatly rejected by Tehran officials.

Iran has faced a raft of sanctions from the international community over its nuclear program, seen by many as a guise for atomic weapons push.

Iran has insisted that the program is for purely peaceful purposes.

"Getting Iran to the table is one thing, getting them to back down is quite another," said Justin Harper, market strategist at IG Markets Singapore. —Agence France-Presse

source: gmanetwork.com

IMF: Europe crisis could halve China's growth

WASHINGTON — An escalation of Europe's debt crisis could slash China's economic growth in half this year, the International Monetary Fund said Monday, urging Beijing to prepare stimulus measures in response.

The IMF, in an economic outlook report on the world's second-largest economy, highlighted China's vulnerability to global demand.

"The global economy is at a precarious stage and downside risks have risen sharply," the IMF said.

"The most salient risk is from an intensification of feedback loops between sovereign and bank funding pressures in the euro area, resulting in more protracted bank deleveraging and sizable contractions in credit and output in both Europe and elsewhere."

The IMF outlined the negative impact if the eurozone crisis tipped Europe into a deep recession, dragging China's growth lower mainly due to shocks through trade.

In that "downside scenario" China's growth would fall by around 4.0 percentage points this year from the 8.2 percent rate the IMF projected in January, the Washington-based institution said.

In that case, "China should respond with a significant fiscal package."

"The weak external outlook underscores the importance of accelerating the transformation of China's economy to reduce its vulnerability to the vagaries of global demand."

The IMF forecast last month that its "downside scenario" would shave 1.75 percentage points off 2012 global growth, currently projected at 3.3 percent. — Agence France-Presse


source: gmanetwork.com