Must read: LVMH, Birkenstock IPO, Novo Nordisk

GLOBAL MARKETS

European stocks are trading mixed morning following the best session in nearly a year driven by less hawkish tones from Fed policymakers. Slowing sales from LVMH Moet Hennessy Louis Vuitton SE (EURONEXT:MC) have dragged the CAC 40 into the red, while Burberry Group (LSE:BRBY) has followed suit, slumping to the bottom of the FTSE 100. 

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Government bonds have been rebounding, with yields dropping from multi-year highs, driven by a dovish tilt from Fed speakers with expectations of another rate hike this year retreating. Focus today will be on the latest FOMC minutes and US PPI inflation figures for further clues into the outlook for monetary policy.

BIRKENSTOCK 

Birkenstock gets set for its US IPO today, the third-largest US listing of 2023. It has priced its flotation at $46 a share, in line with its estimated indicated range of between $44 and $49 a share. The German footwear company is expected to reach valuation of around $9 billion, raising around $1.48 billion by selling 32.3 million shares. It opted to list in New York over Germany, partly thanks to the attractive valuations and high trading volumes on offer, plus the US is its largest market in terms of sales. 

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IPOs and M&A activity has been in the doldrums over the last year-and-a-half amid the rising interest rate and elevated inflationary backdrop. But there are tentative signs of a pickup in investor appetite following the flotation of ARM Holdings ADR (NASDAQ:ARM) and now the hotly anticipated Birkenstock IPO.

The highly popular footwear brand is having a major moment, appealing to fashionistas. The brand recognition should help the company to generate significant interest from retail investors. However, the risk with any fashion brands is whether it can sustain its popularity. With that in mind, it has been trying to diversify by expanding beyond shoes into bags as well. The volatile equity market environment is also another headwind to contend with.

LVMH 

LVMH reported third-quarter revenue up 9% to 19.96 billion euros, a sharp drop from 17% growth in the previous period. Its largest division, fashion and leather goods saw sales increase by 9%, missing analysts’ expectations for 10% and its wines and spirits division struggled with a drop in revenue. In Asia ex Japan, sales grew by 11%, slowing significantly from 34% in the prior quarter. 

While luxury has been a strong sector lately, given that customers with high disposable incomes are relatively sheltered from cost-of-living pressures, results from LVMH, the first in the sector, appears to suggest that the blockbuster period for luxury is starting to fade. 

Luxury brands are dealing with slower demand from the US and Europe as well as China’s bumpy post-Covid recovery. The strength of the euro is also weighing on US sales when converted from US dollars back into euros. The company said it is in ‘an uncertain economic and geopolitical environment’. However, to help weather the macroeconomic storm clouds it boasts a highly diversified business model across fashion, watches, and jewellery at the higher end all the way to high street cosmetics, perfumes, and spirits at the lower end of the price spectrum. 

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Over the long term, shares in LVMH have outshined, up over 160% in five years. But today the stock has fallen by over 5%, landing it down around 18% in the past six months, which is part of the reason why it lost its crown as Europe’s most valuable company, usurped by Novo NordiskNovo Nordisk A/S ADR (XETRA:NOVA) thanks to its miracle weight-loss drug.

Results from LVMH could pave the way for further weakness in corporate reports in the sector, which is why shares in rivals like Hermes International SA (EURONEXT:RMS), Kering SA (EURONEXT:KER), Burberry, Moncler SpA (MTA:MONC) and Compagnie Financiere Richemont SA Class A (SIX:CFR) are also under pressure today. 

NOVO NORDISK 

Novo Nordisk said early success in a trial of Ozempic for kidney failure in diabetic patients means the Danish pharma company can end its analysis almost a year early, based on a recommendation from an independent data monitoring board. 

Shares in Novo Nordisk are trading sharply higher, extending the recent rally since August when a large study revealed Wegovy’s potential to reduce serious cardiac events by 20% on top of its ability to help with weight loss. Wegovy was launched in the UK in September having launched in the US in 2021, with major excitement among investors about the sales outlook for its injectable products, Ozempic and Wegovy. 

Shares in rival Eli Lilly and Co (NYSE:LLY) have also been staging strong gains lately – it has developed its own similar drug Mounjaro, which is awaiting a key regulatory decision. JPMorgan estimates the overall obesity drug market could surge to become a $71 billion industry by 2032. Morgan Stanley believes it will be a $77 billion industry by 2030.