MARKET UPDATE
Currency fluctuations push down UK secondary market prices
The secondary watch market fell by 1.9% over May for UK buyers, with the Bloomberg Subdial Watch Index (GBP) finishing the month at £25,952. The reason for this, however, has less to do with the watch market and more to do with global economic conditions. This month, we’ll dive into how economic shifts are being felt in the global watch market.
The Bloomberg Subdial Watch Index across the past 6 months
Global Shifts
The UK index only shows part of the story. This month’s drift in prices was mainly due to currency, instead of a decline in the value of certain watches. A hint - the USD index was slightly up.
We’re still in the midst of a macroeconomic environment dominated by interest rates and central banks. Every month, central bank meetings are some of the most important events dictating the economic futures of countries as markets wait for any signal that central banks believe inflation has been successfully tamed and rate cuts could be coming. When those signals are different in different countries, one of the clearest ways to see that is in currency exchange rates.
The pound has strengthened significantly against the dollar and the euro in the past month. This is in part because expectations are for the UK to be among the last to lower interest rates. The market’s belief in higher interest rates makes the pound more desirable, strengthening its value. As a result, foreign imports are cheaper.
The GBP and USD versions of the BSWI diverged over the past month. The values indicate their respective performance relative to on the 1st of May.
This makes the GBP index look weaker, as the strong pound makes listings overseas appear cheaper. A Rolex Daytona 116500LN that was listed for $24,000 in the US on the 1st of May would cost a UK buyer £19,150. A month later, the same listing at the same USD list price would cost them £18,870. The US price remains stable, but the watch prices have decreased for the UK market.
As we move into a world of declining interest rates, it is worth keeping this macroeconomics in mind. Expectations of rate cuts are constantly evolving, with more aggressive rate cuts seeing relatively weaker currencies, leading to rising prices on imported watches. Depending on where you are, it creates both costs and opportunities.
Japan
Our price index focuses on Europe and the US, treating Asia as mostly separate. However, what’s happening now is impossible to ignore.
The yen is experiencing a historically low value compared to the pound and the dollar, meaning that quite often the lowest prices can be found in Japan. Part of the reason for this is that while the UK and US face interest rates above 5%, Japan is only just moving out of negative rates for the first time in almost a decade. This has had a clear impact on the watch market. For 24 out of the 50 watches in our index, the cheapest listing we’re tracking is in Japan, a huge representation considering the size of the market. For the Rolex Daytona 116500LN, this is also true - the cheapest listing sits at just over £18,000 in Japan vs c.£19,000 in the US and c.£20,000 in the UK.
The pound to yen exchange rate over the past 6 months
Historically, when we speak to collectors, import fees and VAT have kept interest largely confined to the local market. However, with currency creating so much pressure, we’ve seen people increasingly willing to import watches. If this continues, this would surely start to spur a more global market for watches. The opportunity abroad may become simply too good to ignore.
Currency fluctuations are complicated. Interest rates play a role, but the full mechanics of these movements are really sophisticated and we can’t cover all of it here.
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