(Bloomberg) — European stocks rose as investors focused on the latest earnings news, with reassuring results from LVMH spurring gains in luxury names that helped to outweigh weakness in the tech sector after orders at ASML Holding NV missed estimates.
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The Stoxx Europe 600 Index rose 0.5% by 10:17 a.m. in London, with LVMH leading the gains after its earnings soothed worries over luxury demand. Adidas AG surged the most in 11 months after raising its profit forecast. Basic resources were higher after Rio Tinto Group said it expects China’s steel exports to remain historically elevated and support iron ore demand.
Luxury goods names including Hermes International, Burberry Group Plc and Kering also benefited from LVMH’s steady update. Asos Plc jumped as it expects profit to rise in its next fiscal year as the online fashion retailer’s turnaround starts to take hold.
Meanwhile, the slump in chip equipment maker ASML weighed on tech peers such as VAT Group AG and Aixtron SE. The selloff in the sector comes after the Stoxx 600 tech index’s 25% surge in the past year as ASML led gains with a more than 50% jump.
The April-to-October period will likely see an increase in volatility, due to the US election and the increased geopolitical tensions that look set to persist, said Mathieu Racheter, head of equity strategy at Julius Baer. Still, Racheter recommended to remain invested and said “this will open up opportunities for investors to position themselves for the next cycle.”
Investors also continue to factor in the outlook for monetary policy. Federal Reserve Chair Jerome Powell on Tuesday pointed to the lack of additional progress made on inflation after the rapid decline seen at the end of last year, noting it will likely take more time for officials to gain the necessary confidence that price growth is headed toward the central bank’s 2% goal before lower borrowing costs.
Expectations for rate cuts have been pushed back after a slew of hot US economic data in recent weeks, weighing on European stocks in April after a strong first quarter. With all eyes turning to earnings in the midst of geopolitical tensions, volatility indicators entered the area of concern for the first time since last year.
Geopolitical concerns further damped sentiment as Israel weighs its response to Iran’s missile and drone attack.
“An increase in risk aversion continues to build on risky assets which penalizes the stock markets, while supporting the dollar and gold prices,” according to Daniel Varela, chief investment officer at Piguet Galland & Cie SA. Still, with investor sentiment very low, stock markets could “progressively recover lost ground over the days ahead, if political tensions subside somewhat,” he added.
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