(Bloomberg) — European stocks rose as investors focused on the latest earnings news, with reassuring results from LVMH boosting gains in luxury names that helped offset weakness in the technology sector after orders at ASML Holding NV missed estimates.
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The Stoxx Europe 600 index rose 0.5% as of 10:17 a.m. in London, with LVMH leading the gains after its results eased concerns about demand for luxury goods. Adidas AG saw the biggest rise in 11 months after raising its profit forecast. The resource base rose after Rio Tinto Group said it expects China’s steel exports to remain historically high and support demand for iron ore.
Luxury goods names like Hermes International, Burberry Group Plc and Kering have also benefited from LVMH’s constant updating. Asos Plc jumped as it expects profits to rise in its next financial year as the online fashion retailer’s turnaround begins to take hold.
Meanwhile, chip equipment maker ASML’s crisis has weighed on tech peers such as TVA Group AG and Aixtron SE. The sell-off in the sector comes after the Stoxx 600 technology index rose 25% over the past year, as ASML led the gains with a jump of more than 50%.
The April-October period will likely see increased volatility, due to the U.S. election and heightened geopolitical tensions expected to persist, said Mathieu Rachat, head of equity strategy at Julius Baer. Redemption nonetheless recommended staying invested and said “this will open up opportunities for investors to position themselves for the next cycle.”
Investors also continue to take into account the outlook for monetary policy. Federal Reserve Chairman Jerome Powell on Tuesday highlighted the lack of further progress on inflation after the rapid decline seen late last year, noting that it will likely take officials more time to gain the necessary confidence that price growth is heading towards the central bank’s 2% target before reducing borrowing costs.
Expectations for rate cuts were pushed back after a string of encouraging U.S. economic data in recent weeks weighed on European stocks in April after a strong first quarter. With all eyes on earnings amid geopolitical tensions, volatility indicators have entered the worry zone for the first time since last year.
Geopolitical concerns have further dampened sentiment as Israel mulls its response to Iran’s missile and drone attack.
“The rise in risk aversion continues to rely on risky assets, which penalizes stock markets, while supporting the prices of the dollar and gold,” according to Daniel Varela, investment director at Piguet Galland & Cie SA. However, with investor confidence very low, stock markets could “gradually regain lost ground over the coming days, if political tensions ease somewhat”, he added.
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