Luxury and commodity stocks drove European stocks to their first decline in seven days on concerns about China’s sluggish economy. Investors prepared for the latest batch of earnings that’s handed Wall Street banks some of their best results even as other industries are poised to slump.
Resources giants Anglo American Plc, Glencore Plc and Rio Tinto Plc dropped after China’s growth for the second quarter missed estimates. In the luxury sector, LVMH and Hermes International slumped. Richemont fell as much as 9% after the Cartier owner reported an unexpected drop in sales in the Americas. Contracts for the S&P 500 and Nasdaq 100 were steady.
“China growth weakness has been brewing in the background for months,” said Pooja Kumra, senior European rates strategist at Toronto Dominion Bank. “Clearly growth has not been able to keep pace with expectations in the first quarter.”
With its heavy dependence on the Chinese import market, Europe is especially vulnerable. Companies tied to energy and raw materials together make up about 12% of the Stoxx Europe 600, and consumer discretionary industries account for 11%. JPMorgan Chase & Co. strategists expect further weakness in the region driven by lower bond yields as well as earnings disappointments.
Earnings are set to provide crucial direction for markets, with hundreds of companies reporting over the next few weeks. S&P 500 firms are expected to post a 9% drop in profits in the second quarter, making it the worst season since 2020, according to data compiled by Bloomberg Intelligence. In Europe, it may be even worse, with a projected 12% slump.
Big Wall Street banks have been a bright spot as rising interest rates deliver a record profit to JPMorgan, and some of its top rivals signal stronger-than-expected earnings from lending. Meanwhile, recent economic data shows consumer sentiment is improving as inflation eases.
Bonds gained across Europe with US Treasuries as risk appetite tempered.
The dollar was little changed after a gauge of greenback strength snapped a five-day losing streak Friday. The currency’s weekly slide has the index back near levels last seen in April 2022 as some strategists and investors suggest its long bull run is over.
Shares in mainland China were the worst performers in Asia on Monday. Japanese markets were shut for a holiday while trading in Hong Kong was canceled due to a storm. The onshore and offshore yuan weakened. The People’s Bank of China earlier extended support for the currency, but kept its medium-term lending facility unchanged Monday despite mounting market calls for more stimulus.
The yen edged higher after Bank of Japan Governor Kazuo Ueda said uncertainty remains high over the US and global economies. He also said there wasn’t much change in Japan’s bond-market functionality from the previous monetary policy meeting in June.
Key events this week:
Some of the main moves in markets:
Stocks
Currencies
Cryptocurrencies
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
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