Luxury weighed down by fears of a US debt crisis

The end of the tug of war around the US debt ceiling remains in sight. For two days, the concern has been palpable in the markets. The LVMH group was one of the first to pay the price on the Paris stock exchange.

Is Frenchman Bernard Arnault still the richest man in the world? On Tuesday, May 23, the first group of the CAC 40 lost 10,000 million euros in a single session. It was a staggering 5% drop, as the world’s No. 1 luxury goods company had until then seemed totally impervious to the turbulence of the global economy.

The downward movement started on Tuesday continued on May 24.

It seems like a warning. The US default could occur within a week if a political agreement is not reached. This threat is what has brought down the luxury giant and sunk all the European stock markets.

The message to investors is clear: a US debt crisis will spare no one, not even the ultra-rich and the companies that make a killing out of it.

Fitch puts US on negative watch

Fitch, which has so far maintained its prized triple-A rating on the world’s No. 1 power, could downgrade it if no solution is in sight. This further weakens the credit of the US Treasury.

In 2011, during an earlier debt ceiling crisis, Standard and Poor’s was the first agency to strip the US of its famous triple-A rating. US politicians start to panic, demanding that the Treasury prioritize repayment to creditors in case of default.

“Impossible,” replied US economist Janet Yellen, “this is not how the US payments system was designed.”

Following Fitch’s warning, the Treasury urged policymakers to reach an agreement as soon as possible to avoid an economic crisis “manufactured” by this highly political pulse.

In Paris, Hermès and Kering also slumped

According to the Bloomberg agency, 60,000 million dollars have vanished in this sector that was believed to be immune.

With the debt crisis rumbling in the background, growth, and therefore consumption, may be slowing in the United States. This does not affect either the hyper-rich or the very rich, two groups that account for about 70% of the sector’s turnover.

Instead, the “ladies” and “gentlemen” who aspire to wealth, or at least its outward signs, that is, those who occasionally splurge on sneakers or the latest “it” bag, will start to keep an eye out. their expenses. They represent 30% of sales, so an important part of the income of the big brands is in danger.

Is Frenchman Bernard Arnault still the richest man in the world?

Nothing has changed in the ranking established by Forbes, but his fortune has again fallen below the barrier of 200,000 million dollars. A fortune indexed to the price of his group, since it is the main source of his enrichment. This stock market halt must be relativized.

After the slowdown due to Covid-19, LVMH quickly got back on track, with strong earnings growth and record profits in 2021 and 2022. And 2023 is off to a great start. Its price has risen 28% since the beginning of the year.

The crisis, if it comes, can mean the end of the feast. Brands used to blatantly raise the prices of their knick-knacks. It is not certain that the bag of 10,000 euros will continue to find buyers in the event of a US default.

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