Must read: Novo Nordisk, gold, Frasers, DS Smith/Mondi

GLOBAL MARKETS

European markets have opened around the flatline ahead of the latest US non-farm payrolls report, which will provide clues into the strength of the economy stateside. It comes after Fed chair Jay Powell indicated that the central bank might be close to cutting interest rates, while the European Central Bank’s president Christine Lagarde signalled June could be when it first cuts rates.

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Novo Nordisk A/S ADR (NYSE:NVO) investors are enjoying some profit-taking today after the stock surged on Thursday following a successful trial of weight loss drug Wegovy, pushing its stock market valuation above that of Tesla Inc (NASDAQ:TSLA). The pharma giant is already Europe’s most valuable company, after leapfrogging Lvmh Moet Hennessy Louis Vuitton SE (EURONEXT:MC) last year. 

In the UK, DS Smith has surged to the top of the FTSE 100 amid hopes of a takeover from Mondi, while Rentokil Initial (LSE:RTO) is under pressure, giving back some of yesterday’s gains.

Gold is marching higher on track for its best week in five months, poised to log its third straight weekly climb, reflecting hopes of near-term rate cuts from the Fed. Meanwhile, the dollar is on track for its worst week of the year.

FRASERS/MATCHESFASHION

Frasers Group (LSE:FRAS) has put Matchesfashion into administration less than three months after it bought the luxury clothing platform from private equity firm Apex in December. Frasers said, “the business has consistently missed its business plan targets and, notwithstanding support from the group, has continued to make material losses”.

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The financial woes facing Matchesfashion highlight the broader slowdown in the luxury goods market. High-end luxury demand has been waning amid a weak post-Covid recovery in China as well as broader global macroeconomic pressures. While luxury brands typically raise prices without much of a problem for demand, perhaps now price hikes have gone too far as consumers’ propensity to spend wanes. In another worrying sign for the sector, Burberry Group (LSE:BRBY) issued a profit warning in January with its shares down by more than 50% over the past 12 months. 

The speedy transition by Frasers from its purchase of Matchesfashion to its decision to put the company into administration suggests the financial woes facing the online fashion platform are clearly much worse than Frasers had thought, landing the brand in an unsalvageable situation. It also shows how even the e-commerce sector, which is relieved of many bricks-and-mortar cost pressures, is still facing immense financial stress amid the weak global growth backdrop. Its rival, Net A Porter, similarly struggled with losses in the first half of last year. A lack of management continuity with a series of quick succession CEO changes in recent years haven’t helped Matchesfashion either.

Shares in Frasers Group are under pressure, bringing its year-to-date slide to more than 10% in a disappointing start to the year for its investors after a strong run since the pandemic.

DS SMITH/MONDI

Packing company Mondi (LSE:MNDI) has made a £5.14 billion all-share offer to acquire smaller rival DS Smith (LSE:SMDS), sending shares in the takeover target higher by nearly 6.5%. DS Smith is extending gains having initially rallied in February when Mondi expressed its interest in the UK paper and packaging company. Shares in DS Smith had been somewhat in the doldrums, slowly retreating from the highs in 2021, providing an attractive opportunity for Mondi to snap up its shares at a discount.

The tie-up, creating an £11 billion packaging giant, would allow both to benefit from economies of scale in a competitive sector in a world that is becoming more and more dependent on Amazon deliveries. Just this week, DS Smith signalled that market conditions were challenging with a weak performance in Northern Europe in particular. Last year, it reduced its packages prices to try to spur demand. So, perhaps inorganic growth is the best way forward to spur growth and increase its market share.