Trading update : 23 October 2024

The Trump economy

A Wall Street Journal article outlined the potential implications for the global economy under a second Trump term. Should Trump implement higher tariffs as an end unto themselves rather than simply a tool for negotiation, one estimate suggests tariffs could reach their highest level since the 1930s. In the short run, some prices in the U.S. would rise and growth might suffer as consumers and businesses adjust to the new taxes on imported goods. The long-term impact depends on whether other countries retaliate, and how far Trump would be willing to negotiate. The outcome could be anything from an all-out trade war to a new trading system among U.S. allies united by their collective frustration with China. U.S. tariffs would go from among the lowest to highest among major economies. If other countries retaliated, the rise in global trade barriers would have no modern precedent, said Doug Irwin, a trade historian at Dartmouth College.

UK inflation falls below BoE target

UK inflation fell below the Bank of England’s (BoE) 2% target for the first time in over three years, with consumer prices rising 1.7% in September, down from 2.2%. This unexpected decline has led investors to anticipate quicker interest rate cuts, with money markets now betting on back-to-back reductions in November and December. Bloomberg reports that the drop in inflation was driven by cheaper airfares and petrol prices while services inflation slowed to 4.9%, below the BoE’s forecast. Despite the easing price pressures, caution remains as inflation may rise again in the coming months.

Lower eurozone inflation supports rate cut

According to Eurostat data, annual inflation in the Euro area was 1.7% in September 2024, down from 2.2% in August. A year earlier, the rate was 4.3%. European Union (EU) annual inflation was 2.1% in September 2024, down from 2.4% in August. A year earlier, the rate was 4.9%.

In response, the European Central Bank (ECB) lowered interest rates for the third time this year as a hastier retreat in inflation allows it to offer support to the region’s stuttering economy.

Adidas winning in sneaker brand war

Adidas (ADSD-TRQX) stock has outperformed Nike (NKE-NASQ) by 54% year-to-date. Revenue guidance for the financial year increased to ~10%, which compares favourably to Nike’s flat to down guidance. Retro models like the adidas Samba, Spezial and Campus are doing much of heavy lifting, however, sustained success will depend on management not making the same mistake as Nike and rehashing retro models at the expense of innovation.

Luxury brands feel consumer pain

The Financial Times reported total group sales at LVMH Moet Hennessy Louis Vuitton SE (MCP-TRQX) are down 3% for the quarter and flat year-on-year (yoy). The key fashion and leather goods division is down 5% and China was again seriously disappointing with Asia (ex. Japan) sales down 16% for the quarter under review and now down 12% for the first nine months of 2024. The market, it seems, sees this as a classic macro downturn, and one that will soon reverse. Analysts, for instance, are pencilling in mid-single-digit sales growth for LVMH next year. However, it is by no means clear that the luxury sector will seamlessly return to rapid growth when the macro drag eventually clears. Bloomberg reported that Swiss watch exports were also down in September, falling by 12.6% yoy to CHF 1.96 billion, according to the Federation of the Swiss Watch Industry, impacting Compagnie Financiere Richemont SA (CFRZ-TRQX). Exports to China dropped significantly by 49.7% while exports to the USA and Japan increased by 2.4% and 2%, respectively.

Pro EV indicators

Bloomberg reports that roughly 10% of all miles driven in an Uber (UBER-NASQ) around the world are now in an electric vehicle (EV). Nowhere in the world is Uber doing better with its electric ambitions than London, where 30% of miles driven in its vehicles are zero-emission. Growing an electric ride-hailing fleet is now core to Uber’s business model. “Our number one competitor is personal car ownership,” he said. “In the US, we want you to get rid of that second car and in many other places in the world, we want you to get rid of the car.”