A sales miss by luxury giant LVMH, attributed to restrained spending by Chinese shoppers, coupled with disappointing results from major U.S. tech firms Tesla and Alphabet, is likely to keep investors on edge ahead of a series of European earnings reports.
Wednesday will be a busy day, particularly for European banks, as the market closely watches to see if gains from higher interest rates have plateaued and if recent political turmoil is affecting investor sentiment. Spain’s Santander and France’s BNP Paribas, the euro zone’s two largest lenders by market value, are scheduled to report their earnings for the April to June period, alongside Germany’s Deutsche Bank and Italy’s UniCredit.
Luxury stocks in Europe are expected to take a hit after LVMH, the owner of high-end brands such as Louis Vuitton, Tiffany & Co, and Hennessy, reported a 14% decline in sales in Asia (excluding Japan) for the second quarter, following a 6% drop in the first quarter. The top 10 European luxury stocks index is already down 2.6% in July, on track for a fifth consecutive month of decline following a profit warning from Burberry last week.
The European technology sector is also likely to face pressure. The sub-index has been volatile recently due to concerns over rising trade tensions affecting the semiconductor industry. Tesla’s report of its smallest profit margin in over five years adds to the sector’s woes.
Beyond earnings, investor focus will also be on Purchasing Managers’ Index (PMI) data from Europe, which will provide insights into the health of the economy. This data will help investors assess whether the European Central Bank (ECB) might consider cutting interest rates in September.
In the currency markets, rapid gains by the yen have caught traders’ attention. The yen is up 3.7% against the U.S. dollar this month, reaching a six-week high amid suspected intervention by Tokyo and speculators unwinding short positions on the frail currency. The upcoming meetings of the Bank of Japan (BOJ) and the U.S. Federal Reserve will be crucial. While both banks are expected to hold rates steady, their forward guidance could diverge significantly, with the BOJ potentially hinting at rate hikes and the Fed suggesting cuts.
Overall, European and global markets are poised for a day of volatility as investors digest earnings reports, economic data, and currency movements, navigating the complexities of a shifting financial landscape.
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