The European market (Stoxx-600) closed around 343.26 Monday, stumbled by almost -1.13% on higher EUR, lower oil and the lingering concern of economic growth after terrible X-Mas retail sales projections coupled with never-ending Brexit and Italian budget saga. Europe plunged after a sharp decline in European retailers due to a record plunge in UK online fashion retailer ASOS (LON:ASOS), which collapsed almost -40% after a guidance warning. ASOS cuts its full-year sales-growth guidance and warned the Christmas shopping season got off to a disastrous start.
European stocks plunged more as Dow crumbled almost -300 points when Europe goes home. The overall US market sentiment is also dragged by a plunge in another retail stock, Best Buy in pre-market trading after an analysts’ downgrade. The US market was also dragged by the lingering US political jitters and the concern of a slowing US economy.
But there was another prime factor behind the selling spree as various hedge funds are liquidating their positions/holdings in the year-end as they are returning money to the investors amid huge loses and turning themselves into small family offices, managing only their own/family & friend’s funds.
On Monday, ASOS plunged by to over 2-years low after it cut its projections for the current financial year ASOS said it was experiencing a “significant deterioration” in the trading month of November and that conditions remain challenging. Guidance is slashed to 15% from earlier expectation of 20-25%. ASOS cut its full-year sales-growth guidance on a “significant deterioration” in November, blaming a high level of discounting amid economic uncertainty and low consumer confidence, which has been undermined in the UK by the continuing Brexit saga.
Subsequently, the rest of the UK/Europe's big retailers including Marks & Spencer, JD Sports, Next and Boohoo all tumbled, while German retail giant Zalando has also joined the "retail apocalypse", crumbled by over 15%. Last week, Sports Direct (LON:SPD) International also plunged after its CEO said sales were “unbelievably bad” in November.
The sudden “online retail apocalypse” was in sharp contrast to an earlier rhetoric that “bricks and mortar” retails are dying, while online is the future and this also shows that consumer spending has affected, especially for high value/premium segment. The AOS story also shows that retailers can’t rely on online operations to make up for a decline in stores this year, if consumer sentiment is fragile and if December doesn’t improve, 2019 may bring more such guidance warnings.
The ASOS saga also shows that consumers are not willing to spend lavishly even in the traditional pre-X-Mas shopping amid an economic and political uncertainty of Brexit, a self-inflicted wound by the UK politician on country’s economy despite the dual advantage of a devalued GBP and a free trading access with the Eurozone countries for the last two years since Brexit referendum.
The market is concerned that other retailers such as Debenhams and Marks & Spencer, which are in the midst of turnaround plans, may be particularly vulnerable. The UK’s shopping districts have already been affected by a series of collapses, including the insolvency of department-store chain House of Fraser, which Ashley rescued earlier this year.
Apart from retailers and consumer discretionary, healthcare stocks were also under stress on the adverse US ruling on Obamacare, while miners have helped the European market as China managed to close modestly higher after the PBOC injected a net CNY150B in reverse repo liquidity after 36 days of silence. Energies also dragged as oil slips on US oversupply and the concern of global economic growth.
Germany 30
Germany’s export savvy DAX-30 slumped -0.86% to close around 10772.20; it was dragged by retailers, consumer & cyclical, and consumer discretionary. France’s CAC-40 plunged -1.11% on techs, industrials and consumer goods.
UK 100
The UK’s FTSE-100 plunged -1.05% to close around 6773.24 on higher GBP, lower oil (energies) and further dragged by the never-ending Brexit drama and retailers led by ASOS guidance warning, while helped by miners on China optimism-RR liquidity injection by the PBOC after over a month ahead of China’s Annual Central Economic Conference from Tuesday. The market is expecting the Chinese government will set an appropriate policy direction and could also announce some policy stimulus for the slowing economy amid Trump trade war.
Italy 40
Italy’s FTSE MIB-40 tumbled -1.15% to close around 18693.45 on lingering budget standoff between Italy and the EC as the dialogue (games of chickens) continue between them. As per a report, Italy’s populist coalition government has agreed on numbers and contents of 2019 revised budget. In Italy, leaders of the coalition government looked optimistic that they would eventually avoid disciplinary actions by the EU over its 2019 budget. The leader of the League Salvini said, after meeting with 5-Star Movement head Di Maio and Prime Minister Conte, “We have found an agreement on further fiscal reductions that probably will be appreciated by the EU.”
Salvini’s spokeswoman also said there is total agreement between Conte, Salvini and Di Maio on the numbers and contents of the proposal to send to Brussels, regarding 2019 budget plan. And she denied there were tensions within the coalition government and rumors that Prime Minister Conte had threatened to quit. Separately, Di Maio also said the talks with the commission will allow Italy to avoid an infraction procedure. On early Tuesday, as per a report, the EC/EU is still unconvinced on Italy’s revised budget.
On Monday, EURUSD closed around 1.1349, surged by almost +0.39% on broad weakness in the US dollar despite subdued core CPI, Brexit and other European political jitters and slowing economic growth, which could keep the ECB in the sideline even after the “summer 2019”. EURUSD made a multi-week low of 1.1268 on Friday.
WTI Oil
In commodities, on Monday crude oil (WTI/Feb-19) plunged almost -3.76% to close around 49.65 on US oversupply and the concern of global economic growth. On early Tuesday, oil further slumped by almost -2% and made a low of 48.89, at over 1-year low on reports of inventory builds at Cushing and forecasts of record output by the US and Russia. As per data from market intelligence firm Genscape on Monday, inventories at the US storage hub of Cushing, Oklahoma, which is the delivery point for the WTI futures contract, rose by more than 1 mb from Dec 11 to 14.