Chart of the day - FRA40 (08.02.2024)

11:18 AM 8 February 2024

Although no significant data was released today from France, due to the significant concentration of the luxury goods and fashion sector (LVMH, Kering, Richemont), the benchmark FRA40 may be sensitive to consumer sentiment in China. It is in Asia that many fashion conglomerates have built their financial bases and are reaping significant benefits (with all the consequences that entails). As a result, the listings of French luxury companies today depend heavily on the situation of Chinese consumers and, in part, manufacturers. Today, after the opening, FRA40 contracts are gaining almost 0.4% and are doing, next to the Dutch index supported by the euphoria of Adyen shareholders, the best in the European market. This is despite declines in China's indices and continued weak macro readings from the Middle Kingdom.

  • China's CPI inflation came in lower than expected in January, raising fears of deflation and an economic downturn. CPI fell -0.8% y/y vs. -0.5% forecast and -0.3% in December (m/m rose 0.3% vs. 0.1% previously). Core CPI inflation rose 0.4% vs. 0.6% in the previous reading; food prices fell 5.9% y/y.
  • Producer prices i.e. PPI fell 2.5% vs. 2.6% forecast and 2.7% previously. In an explanation, however, China's statistics bureau said the readings were negatively affected by the high base effect from last year. Producer prices y/y fell slightly less than expected. 

Kering (KER.FR) a fashion conglomerate tied primarily to the Gucci brand, which accounts for about two-thirds of its revenue, reported results today. Although the company expects further pressure on operating profit in 2024 and reported mixed results (marginally higher total sales, slightly lower Gucci sales), it conveyed that it is seeing improved demand in Europe and North America. As a result, the stock is already gaining more than 4%. Also, index declines in China were relatively limited, and hedge fund analysts investing in China conveyed that the data was only a minor disappointment, as continued deflationary pressures were widely expected by the market.

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FRA40 chart (H1)

With the Hang Seng returning above 16,000 points, we can expect a gradual improvement in sentiment among fashion companies, which have been weighed down by China in recent months. As a result, FRA40 could benefit. In recent days, we can also see an inverted head and shoulders formation forming. In an upward scenario, the main psychological resistance will, of course, be the 8000 point level. On the other hand, the deterioration of sentiment in China may work in the opposite direction and pull the French benchmark even to the area of 7500 points, where we see the 23.6 Fibonacci retracement and previous price reactions.

Source: xStation5

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