U.K. retail sales rose in December as stores offered discounts during the holiday shopping season to lure consumers.
Sales including fuel rose 0.6 percent from November, when they fell a revised 0.5 percent, the Office for National Statistics said today in London. The December increase matched the median forecast of 21 economists in a Bloomberg News survey. From a year earlier, sales were up 2.6 percent.
The gain in consumer demand may not be maintained as U.K. unemployment rises, inflation outpaces wage growth and consumer confidence falls. With the euro-area crisis damping export demand, that’s deepening fears Britain is heading for a another recession.
“Sales were driven mainly by heaving discounting of shops in the run up to Christmas,” Joost Beaumont, an economist at ABN Amro Bank NV in Amsterdam, said before the announcement. “But I think that will be as good as it will gets, especially as the weak labor-market conditions will weigh on the consumer spending.”
The pound remained lower against the dollar after the report and traded at $1.5467 as of 9:34 a.m. in London. It was down 0.1 percent from yesterday.
Clothing Sales
The monthly increase was led by clothing sales, which rose 1.8 percent, and the other stores category, which includes computers and telecommunications equipment and increased 2.5 percent. Excluding fuel, retail sales rose 0.6 percent in December from November and increased 1.7 percent from a year earlier.
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Luxury Goods May Benefit From Weak Currencies
Investors forecasting the euro and Swiss franc will weaken against the dollar may find comfort in shares of European luxury-goods companies.
Cie. Financiere Richemont SA (CFR) and LVMH Moet Hennessy Louis Vuitton SA (MC) are among stocks that would benefit disproportionately if the currencies fall further from year-ago levels, according to Thomas Mesmin, a Paris-based analyst at brokerage CA Cheuvreux. For every 1 percent decline in exchange rates, the industry’s average earnings before interest and taxes may rise 1.3 percent to 1.5 percent, he said.
“This will help luxury-goods companies, because a high proportion of their sales come from outside of Europe, while their cost bases are in euros, Swiss francs or the British pound,” Mesmin said.
Richemont, owner of Cartier and Montblanc, will be “one of the best currency plays,” because about 65 percent of its sales are in non-European denominations, its costs and accounts are euro-dominated, and its shares trade in Swiss francs, he said.
Worldwide sales for the Geneva-based company grew 24 percent at actual and constant exchange rates in the quarter ended Dec. 31, compared with a year ago, it said Jan. 16. Richemont reconfirmed its forecasts that operating profit for the year ending March 31 will be “significantly higher than last year,” Chief Executive Officer Johann Rupert said that day.
A weaker euro helps Salvatore Ferragamo SpA (SFER), the Italian maker of handbags and shoes, by making it more competitive and boosting margins, Chief Executive Officer Michele Norsa said at a Jan. 15 fashion show in Milan.
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Chinese Manufacturing Contraction Boosts Case for Monetary Easing: Economy
A Chinese purchasing managers’ index signaled manufacturing may contract for a third month as a slowing economy boosts the case for the government to further loosen credit controls.
The preliminary January reading of 48.8 for the gauge, released by HSBC Holdings Plc and Markit Economics today, compares with a final 48.7 number for December. The dividing line between contraction and expansion is 50.
International Monetary Fund Managing Director Christine Lagarde joined global officials today in warning that the world economy is decelerating and faces “significant and urgent challenges.” China has allowed its five biggest banks to boost first-quarter lending and may relax capital requirements, people with knowledge of the matter said.
“We expect more policy easing to stabilize growth and the next reserve ratio cut is likely to be delivered in the coming weeks,” said Qu Hongbin and Sun Junwei, Hong Kong-based economists for HSBC. “Demand is likely to remain relatively subdued for the coming months,” which may weigh on output and employment growth, they said.
The data imply growth in industrial output of about 11 percent to 12 percent in the coming months and economic growth of about 8 percent in the first quarter, the analysts estimate.
