"I think that there are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded next year until we get a deal with China," Kevin Hassett, chairman of the White House Council of Economic Advisers, said in an interview with CNN on Jan. 3.
Source: Associated Press
Hassett's grave proclamation came after Apple Inc. shocked markets by reducing its forecast for first-quarter revenue, citing weaker iPhone sales in China. Although officials from both governments are meeting the week beginning Jan. 7 in an attempt to find a compromise beyond the 90-day détente that began Dec. 1, 2018, it looks like many companies in the consumer space will feel the effects of China's issues, both domestic and international, as earnings season rolls around once more.
Particular attention should be paid to luxury goods companies. The likes of LVMH Moët Hennessy Louis Vuitton SE Kering SA and Hermès International Société en commandite par actions rely heavily on China's middle class and could prove a key barometer of the current state of affairs. These businesses suffered during the final three months of 2018, as the MSCI Europe Textiles, Apparel and Luxury Goods Index's drop of more than 20% showed. Cartier-owner Compagnie Financière Richemont SA is the first to report, on Jan. 11.
Elsewhere, for those businesses without significant direct exposure to China, the combination of slowing growth and a prolonged quarrel with the U.S. is sending jitters through the market. For that reason, all eyes will be on China in the coming weeks.
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Consumer Edge is a weekly collection of critical developments across the automotive; retail; and food, beverage, and tobacco industries that draws on exclusive analysis and value-added content from the Consumer News team at S&P Global Market Intelligence.