Australian fall drags markets down there

Thursday, 04 August 2011

In what it has become a fateful week, FashionUnited Top 100 Index closed down by 22.23 Wednesday, weighted by international concerns on gloomy consumer rates and runaway inflation.

During early European deals on Wednesday, the euro strengthened against other major currencies after the Swiss National Bank cut its interest rate target. Higher-than-expected Eurozone retail sales also boosted the single currency, but unfortunately this boost did not reach most of listed companies.

Corporate news Wednesday were topped by Next, which shares traded high soon after  the company posted a 3.2% rise in first half sales, bucking a trend of unrelenting gloom on the U.K. high street as sales have stalled and several big name retailers have slipped into administration. Defying this backdrop, the UK's second largest clothing retailer by sales also noted a 15.1% increase in directory sales offset a 1.7% decline in store sales. Therefore, directory sales now account for 30% of Next's UK sales, up from 24% five years ago, predominantly because of online sales.

Other news that helped the high street retailer was the dramatic change of opinion with regards to its pricing policy. The retailer suffered from an 8pc increase in costs in the first half of the year, which it passed on to customers – a move that lost the company some sales, Lord Wolfson said. "The reality is it did hinder sales", he said. This was the first time in twenty years that Next had been forced to raise clothes prices.


However, cotton prices have started to fall and the constraints on Chinese clothing factories – which had caused Next problems a year ago when it could not find factories able to make more copies of its bestselling items during a peak period – have started to ease. "Our instinct would be to cut prices," said Lord Wolfson. "We can't say with any confidence that they will fall later this year. But we are confident they won't rise."

Meanwhile, down there, the Australian share market has dived to its lowest point in almost a year and the Australian dollar has taken a battering over concerns about a possible United States recession and figures showing retail spending in Australia at a standstill.

Analysts are now aggressively predicting several interest rate cuts before the end of the year - just one day after Reserve Bank governor Glenn Stevens said his board was considering pushing rates up. The S&P/ASX 200 index fell 2.3 per cent, wiping about $30 billion from the value of listed companies. This took losses over two days to almost $50 billion, with the market at its lowest point since last August. One of the hardest hit markets was footwear, which has lost -4.1 in the last month.

Finally and following latest released research on relative performance by Financial News Online, Lululemon Athletica (NASDAQ:LULU) ranks first with a gain of 2.66%; Coach (NYSE:COH) ranks second with a gain of 1.13%; and Fossil (NASDAQ:FOSL) ranks third with a gain of 0.85%. Polo Ralph Lauren (NYSE:RL) follows with a gain of 0.28% and True Religion Apparel (NASDAQ:TRLG) rounds out the top five with a gain of 0.06%.

Angela González-Rodríguez

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