Weak German economic data and a slump in the shares of luxury goods group LVMH hit European stock markets yesterday.
Equities also extended losses after Russia said Ukraine had targeted Russian law enforcement officers by shelling across the border from eastern Ukraine, where government forces are fighting pro-Russian separatists.
The development reinforced investors’ concerns about the conflict there, a week after 298 people were killed when a Malaysian passenger plane was shot down over rebel-held territory in eastern Ukraine.
Germany’s benchmark DAX equity index, which hit a record high of 10,050.98 points in late June, closed down 1.5 per cent at 9,644.01 points. The DAX came under pressure after a survey by the respected Ifo think tank showed that German business sentiment fell to its lowest level in nine months in July.
“The Ifo number looked negative. I think the European stock markets will drift slightly lower,' said Darren Courtney-Cook, head of trading at Central Markets Investment Management.
Courtney-Cook said he would be “short” on the DAX futures – namely betting on future falls – if the index stayed below 9,800 points. He expects European stock markets will edge lower over the coming month.
France’s benchmark CAC equity index fell 1.8 per cent, hit by LVMH’s 6.8 per cent drop. The world’s biggest luxury goods group was also the worst-performing stock, in percentage terms, on the pan-European FTSEurofirst 300 index, which fell 0.7 per cent to 1,372.11 points.
LVMH reported second-quarter sales and profits that missed market forecasts late on Thursday, citing a drop in demand in China. The results were released after European stock markets had closed.
LVMH’s woes also hit rival luxury goods companies, with Richemont falling 2.3 per cent while Kering dropped 4.9 per cent.
Loic Morvan, an analyst at investment bank Bryan Garnier, cut his rating on LVMH to “neutral” from “buy”, adding that LVMH’s business slowed significantly in the second quarter.
In Europe so far this quarter, 40 per cent of companies have missed earnings expectations, according to Thomson Reuters StarMine data, underperforming the US, where only 28 percent have lagged forecasts.
“Overall sentiment remains neutral, with investors continuing to prefer US stocks to European ones due to the US earnings season having delivered solid and mostly better-than-expected results so far,” said Markus Huber, senior sales trader at Peregrine & Black.