Overseas Headlines – January 17, 2018


China luxury sales rebound as millennials snap up cosmetics, handbags: report

Domestic sales of Gucci handbags to Chanel cosmetics, sluggish in China for years, rose at the fastest pace in over half a decade last year and are poised to consolidate the gains in 2018, according to consultancy Bain & Co. That could provide a major fillip for brands targeting the world’s top luxury spenders, though who benefits most will depend on which brands are able to lure in China’s big-spending youth – now the driving force in the market. Sales of luxury goods in China hit 142 billion yuan ($22.07 billion) last year, up around 20 per cent from the year before, Bain & Co said in a report on Wednesday. That’s the sharpest growth since 2011, when luxury sales started to be hit by slower economic growth and a fierce crackdown on corruption. China’s shoppers are the biggest spenders worldwide on luxury products, making up 32 per cent of the 262 billion euros ($308 bln) global market last year and propelling France’s LVMH (LVMH.PA), Burberry (BRBY.L) and Gucci owner Kering (PRTP.PA).




Euro surge threatens profitable bond trades

The euro’s sizzling January rally is undermining one of the most profitable bond market trades of recent years by potentially raising hedging costs and thereby eroding profits of overseas investors. Japanese and U.S. investors have long bought European sovereign bonds despite many offering a negative yield. They are attracted by the juicy return obtained from hedging the purchases via foreign exchange derivatives known as cross currency basis swaps. But as the European Central Bank shifts closer to policy “normalisation”, these holdings could come under pressure from a stronger euro and force investors to look elsewhere. European bond yields would then shoot higher, posing a challenge for policymakers who want to keep borrowing costs low to boost the ongoing recovery. Such flows are large. By last year, Japanese investors had amassed an $845 billion position in European bond markets, according to data from Japan’s Ministry of Finance. Analysts estimate they own more than 12 percent of the French government bond market, for example. A rapid unwind of these positions would impose fresh uncertainty on global bond market, which are already battling with the withdrawal of global central bank stimulus, high oil prices and waves of new bond supply.




House Republicans mull funding extension; ‘Dreamer’ deal not set

House Republicans considered on Tuesday a stopgap bill to fund the U.S. government through Feb. 16 to avert a shutdown, but the measure would not include Democrats’ demands for protections for young people brought to the United States illegally as children. Partisan finger-pointing over immigration policy on Tuesday left Congress and the White House stumbling closer to a possible federal government shutdown by the end of the week. Republicans who control Congress are expected to try to push another stopgap funding bill and get it to President Donald Trump’s desk before a midnight Friday deadline when existing money for federal agencies expires. The bill would not include protections for the young people described as “Dreamers,” Republican Representative Mike Simpson told reporters after his party’s closed-door meeting. Many Democrats in Congress have insisted that immigration be a component of the temporary spending bill.