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European stocks slipped on Wednesday, with fresh data showing eurozone business activity growing at the fastest rate in 15 years, but also rising price pressures. Shares of luxury goods makers fell on downgrades from HSBC.
The Stoxx Europe 600 index
SXXP,
fell 0.2%, while the German DAX
DAX,
and French CAC 40
PX1,
indexes fell 0.4% each. The FTSE 100
UKX,
was up 0.3%.
U.S. equity futures
ES00,
NQ00,
were modestly higher across the board. On Tuesday, the Dow industrials
DJIA,
gained 69 points, or 0.2%. The S&P 500
SPX,
rose 0.5%, while the Nasdaq Composite
COMP,
advanced 0.8%, logging a fresh record close.
Markets were buoyed by Federal Reserve Chair Jerome Powell, who reiterated in his testimony to Congress that higher inflation would be transitory. That followed Monday’s comments from New York Fed President John Williams, who said that with unemployment still high, interest rates would stay low for the moment.
Stocks tumbled last week, after the Fed appeared to move forward the timeline for projected interest rate increases to 2023.
Data swung into focus for Wednesday. The IHS Markit flash eurozone composite purchasing managers index for June climbed to 59.2 from 57.1 in May, and marked an 180-month high. That’s as economies in Europe continue to reopen and COVID-19 vaccines rolled out across the continent.
“The eurozone economy is booming at a pace not seen for 15 years as businesses report surging demand, with the upturn becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially
consumer-facing firms,” said Chris Williamson, chief business economist at IHS
Markit, in a comment accompanying the data.
“Overall, we view the June flash PMIs as consistent with a continued rebound in economic activity across Europe, in line with our GDP [gross domestic product] forecasts,” said economists at Goldman Sachs, in a note to clients.
But the survey also showed average input prices rose at a rate exceeded only once (in September 2000) in its 23-year survey history. A record rise in manufacturers’ material prices was accompanied by a steep climb in service-sector costs since July 2008, the latter reflecting widespread reports of higher supplier, fuel and transport costs and rising wage pressures.
Among stocks on the move, shares of Pernod Ricard
RI,
rose 2%, after the French drinks group raised its guidance for fiscal 2021, citing a stronger-than-expected recovery. Pernod is now forecasting organic growth in profit from recurring operations for fiscal 2021 of around 16%, up from previous guidance of 10%.
Shares of GlaxoSmithKline
GSK,
GSK,
rose more than 3%, pushing it to the top of the list of Stoxx 600 gainers. The U.K. pharmaceutical major said in an update to investors that it expects to deliver sales growth of more than 5% and adjusted operating profit of more than 10% over the next five years, noting that the targets exclude COVID-19-related revenue.
Vodafone
VOD,
VOD,
shares rose 1.5%, after the telecoms giant said its entire European operations will be fully powered by electricity from renewable sources starting on July 1, as it aims to reach net zero carbon emissions by 2030.
Shares of energy companies were rising alongside oil prices
CL.1,
BRN00,
with Royal Dutch Shell
RDS.A,
RDSA,
up 2.4% and BP
BP,
BP,
rising 1%.
On the downside, shares of French luxury-goods group LVMH Moët Hennessy Louis Vuitton
LVMH,
fell 1.3% and shares of French rival Kering
KER,
fell 3%. Christian Dior
CDI,
and Hermès International
RMS,
shares lost more than 1.5% each, Compagnie Financiere Richemont
CFR,
shares slipped 0.3% and Burberry
BRBY,
shares rose 0.3%.
Analysts at HSBC downgraded Kering, Richemont and Burberry to hold and cut Hermè to reduce from hold, keeping LVMH at hold.
“We expect the luxury sector to report exceptionally strong top-line growth for Q2 and expanded margins for H1, but the market might take a break as it really could be as good as it gets,” said analysts Erwan Rambourg and Anne-Laure Bismuth in a note to clients.
