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European Stocks Fall as China Tax Risks Weigh on Luxury Shares

This content was published on October 18, 2021 - 15:54

(Bloomberg) -- European stocks retreated after their best weekly gain since March, with luxury goods shares under pressure after China signaled plans for property tax legislation and economic data disappointed. 

The Stoxx Europe 600 slid 0.5% by the close in London as luxury stocks like LVMH and Kering SA echoed their drop in August, which was driven by nervousness over China’s intent to reduce its wealth disparity. The mood was also subdued by data showing economic growth slowed in the country, fueling fears about further setbacks in the recovery. All European equity sectors traded lower, with automakers and travel falling the most. 

European stocks have rebounded over the past two weeks after slumping through September over concerns about slowing global growth and the impact of energy costs on inflation. The benchmark came under pressure on Monday after data showed China’s housing slump and electricity shortages weighed on economic growth last quarter, while property curbs remain.  

“In China, the GDP number was slightly disappointing but what concerns me the most is the situation in the real estate, which we know could heavily impact the growth and is far from being clearly defined,” said Alberto Tocchio, a portfolio manager at Kairos Partners. Tocchio is also monitoring the potential impact of higher input prices and the supply chain crisis as more companies report earnings.

Early earnings reports have, however, bolstered investor confidence that the recovery can continue.

Earnings are beating consensus by even more than usual this quarter and “there appears to be little evidence of price rises squeezing margins,” said State Street Global Advisors’ Altaf Kassam, adding that he expects this trend to continue. That would “justify the recent equity market rally without need for further multiple expansion,” said Kassam, the firm’s EMEA head of investment strategy and research.

Meanwhile, JPMorgan Chase & Co. strategists led by Mislav Matejka think the upcoming earnings season will be challenging, given the slowdown in activity, supply chain disruptions and rising energy prices. The strategists recommend buying into earnings-generated weakness, as still-expanding PMI economic data mean earnings revisions may not stay negative for long.

Supply Chain Chaos, Surging Costs Set to Plague Europe’s Profits

Among individual movers, THG Plc jumped 21% after founder and Chief Executive Officer Matthew Moulding confirmed his intention to cancel his special share rights.

Playtech Plc rose 58%, the most on record, in London after the British gambling software developer agreed to be bought by Australia’s Aristocrat Leisure Ltd. for $3.7 billion. Meanwhile, Umicore SA fell the most in a month after the company published lower guidance.

  • Equities: Euro Stoxx 50 down 0.8%, FTSE 100 down 0.4%, DAX down 0.7%, CAC 40 down 0.8%, FTSE MIB down 0.8%, IBEX 35 down 0.7%, AEX-Index down 0.5%, Swiss Market Index up 0.1%
  • Bonds: German 10-year-yield up 1bps at -0.15%, Italian 10-year-yield up 2bps at 0.9%, Spanish 10-year-yield up 2bps at 0.49%
  • Credit: iTraxx Main up 0.6bps at 51.0, iTraxx Crossover up 3.2bps at 259.4
  • FX: Euro spot up 0.03% at 1.1604, Dollar index up 0.05% at 93.99
  • Commodities: Brent crude down 0.1% at $84.8/bbl, copper down 1.2% at $10,161/MT, iron ore up 0.1% at $123.65/MT, gold up 0.1% at $1,768.63/oz

EUROPE EQUITIES

  • 0 out of 20 Stoxx 600 sectors rise; utilities sector has the biggest volume at 178% of its 30-day average; 218 Stoxx 600 members gain, 374 decline
  • Top Stoxx 600 outperformers include: THG +20.5%, Kindred Group +3.6%, Temenos +3.3%, Rational +3.3%, Samhallsbyggnadsbolaget i Norden +3.1%
  • Top Stoxx 600 underperformers include: Kesko -5.7%, Carnival -4.7%, Unibail-Rodamco-Westfield -4.5%, International Consolidated Airlines Group -3.9%, Umicore -3.9%

COMPANY NEWS/MARKET STORIES

  • Playtech Jumps On Takeover, Umicore Drops: EMEA Equity Movers
  • Positives May Be Hard to Find This Earnings Season: Taking Stock
  • Banks Beat Market; UniCredit Hiring Spree: EMEA Financials Wrap
  • Philips Misses; Mercator’s Margins Hit: EMEA Health Care Wrap
  • Oil Stocks Resist Market Slide, Miners Drop: EMEA Resources Wrap
  • Sandvik China Slowdown, Umicore Warning: EMEA Industrials Wrap
  • Jittery Day For Luxury Stocks, THG Surges: EMEA Consumer Wrap

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