European equities edged higher on Thursday after European Central Bank’s (ECB) Governing Council member Francois Villeroy de Galhau announced that the bank has almost completed its interest-rate increases. This fueled investor optimism and pushed the Stoxx Europe 600 Index up by 0.3% at 8:07 a.m. in London.
Luxury and Consumer Products Boost European Markets
LVMH, the world’s largest luxury conglomerate, reported record high sales, thanks to the resurgence of Chinese shoppers post-lockdown. This news positively impacted other luxury stocks, including Swiss luxury conglomerate Richemont, and boosted the consumer products sector. Meanwhile, Givaudan SA experienced a rise in organic sales for Q1, surpassing expectations. On the other hand, VAT Group AG faced a drop in orders amid a slowdown in the semiconductor sector.
European Earnings Upgrades Decelerate
The pace of European earnings upgrades has significantly slowed, according to Sanford C. Bernstein strategists. Citigroup Inc.’s earnings revisions index also indicates that profit cuts now outweigh upgrades in Europe, excluding the UK, which aligns with the US and global dynamics. However, the Stoxx Europe 600 has climbed 1.3% in April, compared to an average 2.3% rise over the past three decades.
Sectors to Watch
- UK homebuilder stocks: British property surveyors anticipate increased sales and a positive outlook for prices for the first time in a year.
- Luxury stocks: Brands such as Hermes, Gucci owner Kering, Moncler, and Swatch benefit from LVMH’s soaring sales due to China’s luxury market recovery.
- Italian companies Enel, Leonardo, and Eni: Prime Minister Giorgia Meloni’s government reappoints or replaces leaders at some of Italy’s largest state-controlled enterprises.
ECB’s Villeroy Says Most Rate-Hike Actions Completed
ECB Governing Council member Francois Villeroy de Galhau stated that the bank has already completed most of the interest-rate increases needed to combat inflation, with the most significant economic effects yet to come. Villeroy also suggested that the next phase for the ECB would be more “open,” guided by headline inflation, underlying price dynamics, and the extent of restrictive policy transmission through the economy.
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Conclusion
In conclusion, the latest advancements in technology and the nearing completion of ECB’s interest-rate hikes have contributed to the rise in European stocks. Luxury and consumer product sectors have experienced a boost, thanks to the rebound of the Chinese luxury market and strong sales figures from companies like LVMH. Despite a slowdown in European earnings upgrades, the Stoxx Europe 600 Index continues to climb. Investors should keep an eye on sectors such as UK homebuilder stocks, luxury brands, and major Italian state-controlled enterprises as they navigate the evolving market landscape. As the ECB enters a more “open” phase, it will be crucial to monitor inflation rates and policy changes to understand their impact on European stocks and the global economy.