A strong end to the week for European shares, as the US slips

European markets are set to finish the week on a high as there is a sea of green across European markets on Friday. The Eurostoxx index is poised to close up nearly 3% for the week and is higher by 054%. The FTSE and the Cac 40, the two domestic European indices with the biggest exposure to luxury stocks, are leading the way in Europe right now. The FTSE 100 is up by more than 1%, and if things stay this way it could close the week 2% higher.

LVMH’s strong earnings report spotlights benefits of European shares

The driver for gains in Europe includes better consumer confidence data in the UK and strong results from French luxury giant LVMH. The LVMH results showed a 10% increase in organic revenue, estimates had been for an 8.17% increase. Sales of fashion and leather goods expanded by 9%, just shy of estimates of 9.14%, with sales of watches and jewelry topping estimates, along with perfume and cosmetics. Overall, this was a good show from LVMH for Q4, with broad based strength across its many business lines. The sales breakdown was also encouraging. US organic revenue expanded by 8%, the market had not been expecting such strong growth, with only 1.89% expected. Yet again, analysts have underestimated the strength of the US consumer, which also saw Q4 US GDP trump analyst estimates when it was released on Thursday. US demand is important for a company like LVMH, because the US is the growth centre of the global economy right now. Its economy is firing on all cylinders, and there are less political threats for now, although a Trump Presidency could make things tricky for European exporters.

China has been a weak spot for sales in the luxury space, but even here there was good news. Sales of fashion and leather goods were 30% higher than at the peak of the pandemic, even if the number of Chinese tourists visiting European stores remains lower than 2019 levels. LVMH’s outlook is also supporting its stock price. It said that it is confident of continued growth in 2024, despite uncertain geopolitical and macro backdrops. It also said that it is not anticipating further price hikes this year. Regarding its drinks division, the company said that while China is still absorbing a surplus of Cognac supply due to the prolonged lockdowns in the country, the worst of cognac demand trends are behind us.

LVMH’s share price surged on Friday and is up nearly 10%. This has helped to turn its 2024 share price performance around, and the stock is now up 1.7% YTD. If global economic data continues to improve and if interest rates fall and consumer confidence continues to move higher, then we may see further gains for the luxury sector. Unsurprisingly, the consumer discretionary sector is leading the Eurostoxx 50 higher on Friday and is up by 3.85%. Europe has had two positive results this week, which is a reminder that just because US stocks seem to hog all of the limelight with the media, Europe is back and has some interesting companies that can act as a counterpoint to the tech heavy US indices. ASML – the Dutch company that produce high tech chip -makers – saw a massive increase in orders for this year and next, and LVMH is also signaling positive news for 2024. This news could sustain further gains for the Eurostoxx in the medium term, even if German industrial shares are a drag for the index.

Burberry and Diageo benefit from LVMH glow

The positive luxury news in Europe is feeding into the UK. Burberry is higher by more than 2.4% at the time of writing, even though it recently delivered a profit warning, and Diageo is also higher by more than 4%. This is the largest increase for a year, and it is the top performer in the FTSE 100 so far today. This comes after a double whammy of good news for the sector, including LVMH results and Remy Cointreau, as its earnings were in line with forecasts and although it gave sales guidance at the lower end of expectations, it is still better than the recent spate of downgrades it has issued. Recent news suggests that the luxury consumer is back for 2024, and this is good news for European stocks.

FTSE firing on all cylinders

The FTSE 100 has seen a broad-based rally so far on Friday, with nearly all sectors performing well, particularly energy and healthcare. The latter sector may be receiving a boost after US lawmakers threatened to ban a Chinese healthcare technology company, which could make space for UK companies to step in and fill the gap. Unilever shares rose by the most in 3 months, and the consumer staples sector is also doing well. Shell is also up by 2%, even though the oil price slipped back, after it announced that it will close a key diesel production unit at Germany’s biggest oil refinery. This will now be converted to make lubricants and is a step in the process of reducing the consumption of crude at its German facility. This is boosting Shell’s green credentials and is a sign that the company is nimble enough to switch away from legacy fuels, which are likely to see a continued fall in demand in the coming years. Hence the market is cheering this move by Shell. UK consumer confidence rose for the fourth straight month to its highest level in 2 years. This has also boosted sentiment towards the UK index.

China shares, caught between a rock and a hard place

Elsewhere, Asian shares slipped. The Nikkei is making tough work of reaching its 1989 record high, and is down nearly 0.5% this week, after a 1.34% fall on Friday. This was driven by weaker than expected inflation data. The Tokyo headline CPI rate rose to 1.6% in January, but it was lower than the 2% expected by economists. Also, the core rate fell sharply to 1.6% from 2.1% in December. This reduces the near term need for the BOJ to normalize interest rates and end its negative interest rate policy, which was seen as a positive move for Japanese corporates. Chinese stocks have also suffered losses on Friday, even if they are higher on the week. The Hang Seng is more than 4% up on the week and the main Chinese onshore index is 2.05% so far this week. China’s stocks are facing two opposing forces as we move through the start of 2024: firstly, more stimulus from the Chinese government, which is good news for share prices, and secondly, more pressure on its tech exports from US lawmakers. Chinese medical tech firm WUXI AppTech fell 23% on Friday after US lawmakers threatened to bring a bill to ban the medical tech company from operating in the US. It is not clear if bill will make it to the house or the senate for a vote, but it has cross party support from Democrats and Republicans. Thus, trade wars could hurt Chinese shares before the US Presidential elections. Expect more volatility in Chinese shares in the coming weeks.

Intel hurts US golden child tech stocks

Elsewhere, the US’s golden child – its tech sector – is expected to come under pressure at the end of the week, and even Nvidia is expected to open lower. The S&P 500 is also expected to open lower and buck the European trend. The market could be taking a breather after a big rally for some tech stocks in recent weeks, and Nvidia saw its market cap overtake Amazon’s earlier this week. The S&P 500 has made a series of record highs this week, so even if there is some caution on Friday, we believe that optimism remains high for US equities. Intel’s results have pressured tech stocks and chip makers like Nvidia. Its stock price is down more than 11% in pre-market trading after it gave a very soft forecast for 2024 earnings that was weaker than expected, which overshadowed its solid Q4 results. The US will also release PCE data today for December. This is expected to rise in the month by 0.2% but remain stable at 2.6%. The core deflator is expected to decline modestly to 3% from 3.2%. This is not likely to be a market mover unless the data is significantly different from expectations.