By Barbara Kollmeyer
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 /zigman2/quotes/210599654/delayed XX:SXXP -0.50% fell 0.2%, while the German DAX /zigman2/quotes/210597999/delayed DX:DAX -0.72% and French CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 -0.81% indexes fell 0.4% each. The FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX -0.42% was up 0.3%.
U.S. equities /zigman2/quotes/210599714/realtime SPX +0.34% /zigman2/quotes/210598065/realtime DJIA -0.10% /zigman2/quotes/210598365/realtime COMP +0.84% were modestly higher at the start, a day after a stronger close for stocks, with the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.84% 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, especiallyconsumer-facing firms,” said Chris Williamson, chief business economist at IHSMarkit, 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 /zigman2/quotes/204974112/delayed FR:RI -0.30% 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 /zigman2/quotes/209463850/composite GSK -0.92% /zigman2/quotes/200381158/delayed UK:GSK -0.29% 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 /zigman2/quotes/202862751/composite VOD -0.39% /zigman2/quotes/202484985/delayed UK:VOD -0.91% 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 /zigman2/quotes/211629951/delayed CL.1 -0.04% , with Royal Dutch Shell /zigman2/quotes/205095589/composite RDS.A -0.23% /zigman2/quotes/207682964/composite RDS.B -0.71% /zigman2/quotes/206428183/delayed UK:RDSA -0.21% up 2.4% and BP /zigman2/quotes/202286639/delayed UK:BP -0.59% /zigman2/quotes/207305210/composite BP -0.74% rising 1%.
On the downside, shares of French luxury-goods group LVMH Moët Hennessy Louis Vuitton /zigman2/quotes/206499835/delayed IT:LVMH -2.23% fell 1.3% and shares of French rival Kering /zigman2/quotes/204653408/delayed FR:KER -2.39% fell 3%. Christian Dior /zigman2/quotes/201058228/delayed FR:CDI -1.96% and Hermès International /zigman2/quotes/200522137/delayed FR:RMS -1.40% shares lost more than 1.5% each, Compagnie Financière Richemont /zigman2/quotes/203783259/delayed CH:CFR -1.00% shares slipped 0.3% and Burberry /zigman2/quotes/205386705/delayed UK:BRBY -1.92% shares rose 0.3%.
Analysts at HSBC downgraded Kering, Richemont and Burberry to hold, and cut Hermès 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.