By European bourses experienced a significant decline on Wednesday, as a wave of disappointing earnings reports sparked concerns over a potential slump in luxury goods demand.
The Stoxx 600 index (SXXP) – Europe’s comprehensive stock barometer – dropped by 0.9%. Frankfurt’s DAX 40 (DAX) fell by 0.8%, while London’s FTSE 100 (UKX) saw a decline of 0.6%.
Paris’ CAC 40 (PX1) suffered the most damage, sliding by 1.9%. The sharp drop came after LVMH (MC), the parent company of prestigious brands like Tiffany and Louis Vuitton, issued results that highlighted a worrisome economic slowdown in the United States. While sales in China continued to perform well, LVMH noted signs of weakened demand for high-end clothing and handbags in the U.S.
Steve Clayton, head of equity funds at Hargreaves Lansdown, observed, “LVMH suggested that the decline in U.S. demand was primarily among its aspirational customers, especially those online or in secondary cities. Demand from their wealthier clientele remains more resilient.”
Unsurprisingly, LVMH shares tumbled nearly 5% in response to the news. Kering (KER), the parent company of luxury brands like Gucci and Saint Laurent, also experienced a decline of 3%, while Hermes (RMS) lost over 2%.
Furthermore, U.K. banking stocks faced struggles of their own. Lloyds (LLOY) saw a nearly 3% decrease following its earnings report, while NatWest (NWG) dropped by almost 4% after its CEO resigned. The executive admitted to leaking banking information about a conservative politician to the BBC.
Lloyds’ decline was primarily attributed to rising impairments and concerns regarding net interest margins. Pressure continues to mount on the bank to pass on recent rate increases by the Bank of England to its depositors.
A Positive Outlook for a Health Bank
Richard Hunter, head of markets at Interactive Investor, is optimistic about the bank’s performance. He highlights that the bank’s balance sheet remains strong, and they have announced an increase in dividends, resulting in a projected yield of 5.5%. Additionally, the bank’s £2 billion share buyback program is now 75% complete.
A Successful Turnaround for Rolls-Royce
Rolls-Royce has emerged as a notable outperformer, with its shares surging more than 20%. The company attributes this growth to its successful turnaround plan and the increasing demand for airline travel. As a result, Rolls-Royce has raised its profit forecasts for the year.
Bank of America Strategists Note Disappointing European Earnings Season
The European earnings season is off to a rocky start, with only 46% of companies beating earnings per share (EPS) estimates. This is the weakest beat ratio since late 2019, according to strategists at Bank of America. They also observed that companies that missed EPS estimates experienced a 2% underperformance on the day, which is the most negative reaction seen in almost six years.
Market Updates
In terms of currency, the euro remained relatively stable at $1.1062. Meanwhile, German 10-year government bond yields rose by 3.7 basis points to 2.462% ahead of the European Central Bank’s upcoming monetary policy decision. It is anticipated that the ECB will raise rates by a quarter point to 3.75%.
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