(Bloomberg) — European shares rose as investors focused on the latest earnings news, with reassuring results from LVMH boosting gains in luxury names, helping to 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% at 10:17 a.m. in London, with LVMH leading the way after gains eased concerns about luxury demand. Adidas AG rose the most in eleven months after raising its profit forecast. Baseline sources were higher after Rio Tinto Group said it expects Chinese steel exports to remain historically high 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 profits to rise in the next fiscal year as the online fashion retailer’s turnaround takes hold.
Meanwhile, the slump at chip equipment manufacturer ASML weighed on technology companies such as VAT Group AG and Aixtron SE. The sell-off in the sector comes after the 25% rise in the Stoxx 600 technology index over the past year, when ASML took the lead with a rise of more than 50%.
Volatility is likely to increase in the April to October period due to the US elections and increased geopolitical tensions that appear set to continue, said Mathieu Racheter, head of equity strategy at Julius Baer. Still, Racheter recommended staying invested, saying that “this will provide opportunities for investors to position themselves for the next cycle.”
Investors also continue to consider the outlook for monetary policy. Federal Reserve Chairman Jerome Powell on Tuesday pointed to the lack of additional progress on inflation after the rapid decline late last year, noting that it will likely take more time for officials to gain the necessary confidence that the price growth towards the central bank’s 2% target before lower borrowing costs.
Expectations for rate cuts have been lowered following a raft of good US economic data in recent weeks, which weighed on European shares in April after a strong first quarter. With all eyes on profits amid geopolitical tensions, volatility indicators came into focus for the first time since last year.
Geopolitical concerns further dampened sentiment as Israel weighs its response to the Iranian missile and drone attack.
“An increase in risk aversion continues to build on risky assets, hurting equity markets while supporting dollar and gold prices,” said Daniel Varela, Chief Investment Officer at Piguet Galland & Cie SA. Still, with investor sentiment very low, equity markets “could gradually recover lost ground in the coming days if political tensions ease somewhat,” he added.
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