European Markets Trimmed Weekly Gains, Mercedes-Benz Lowered Annual Outlook

Bridgette Randall
20 Sep, 2024
London

European markets traded down and trimmed weekly gains as investors reassessed global economic growth outlook and rate path after rate decisions from major central banks this week. 

Benchmark indexes in Paris, London, and Frankfurt decreased in Friday's trading but traded higher in the week after rate decisions from the Bank of Japan, the People's Bank of China, the Bank of England, the Norges Bank, and the U.S. Federal Reserve. 

The jumbo-sized rate cut by the U.S. Federal Reserve on Wednesday surprised many market participants, and investors hoped that the central bank is more likely to engineer the so-called soft landing and avoid a recession.

On Friday, the Bank of Japan held steady its short-term lending rate, and the People's Bank of China surprisingly held steady its short- and medium-term rates. 

However, market sentiment was cautious amid luxury automobile stocks after Mercedes-Benz lowered its annual outlook, citing weakness in China. 

Closer to home, the producer price index in Germany decreased annually by 0.8% in August, matching the decline in the previous month, the statistical agency, destatis, reported Friday. 

Factory gate prices have been declining since July 2023, primarily reflecting the fall in energy prices. 

Confidence among French manufacturers remained stable in September after rising in the previous month, the statistical office INSEE reported Friday. 

The manufacturing sentiment remained stable at 99.0, matching the level in August and just below the long-term average of 100. 

Separately, UK retail sales rose more than expected after warmer weather boosted demand for food and apparel, the Office for National Statistics reported Friday. 

Retail sales growth accelerated to 1% on a monthly basis in August from a 0.7% rise in July, and on an annual basis, sales advanced 2.5% from the revised annual 1.4% rise in the previous month. 

 

Europe Indexes and Yields

The DAX index decreased by 0.8% to 18,850.71; the CAC-40 index fell by 0.7% to 7,565.09; and the FTSE 100 index declined by 0.4% to 8,294.19. 

The yield on 10-year German bonds edged higher to 2.20%, French bonds inched higher to 2.93%, the UK gilts edged up to 3.89%, and Italian bonds increased to 3.55%.

The euro edged up to $1.11; the British pound inched higher to $1.32; and the U.S. dollar weakened to 84.91 Swiss cents.

Brent crude decreased $0.46 to $74.40 a barrel, and the Dutch TTF natural gas fell by €1.26 to €34.31 per MWh. 

 

Europe Stock Movers

Vehicle makers were among the leading decliners in Friday's trading after Mercedes-Benz lowered its annual outlook following a rapid deterioration in its business in China. 

Mercedes-Benz Group dropped 6.4% to €55.24, and the luxury automaker said it plans to invest over $2 billion in China with local partners and accelerate its transition to electric vehicle manufacturing. 

The company said its adjusted operating earnings before interest and tax were "significantly below" last year's level amid a rapid decline in sales in China. 

The company-added return on sales is likely to fall in the range between 7.5% and 8.5% from the previously estimated range between 10% and 11%. 

Following the Mercedes-Benz announcement, stocks of other leading automakers declined in the region. 

Porsche Automobil decreased 2.6% to €39.90, Volvo declined 1.5% to SEK 260.60, Stellantis fell 2.4% to €13.63, BMW dropped 3% to €73.86, and Volkswagen eased 2.4% to €91.62. 

Luxury goods makers were also on the slide on the worry of their exposure to China. 

Hermes International declined 2.8% to €1,937.0, LVMH fell 2.8% to €597.40, and Kering SA, the parent of Gucci, decreased 3.5% to €224.95. 

Burberry Group declined 4.8% to 596.60 pence after Goldman Sachs lowered its target price to €235 from €270 and assigned a "neutral" rating. 

Among other widely held stocks, Deutsche Post, Infineon, Puma, Adidas, Essilor, and L'Oreal fell between 2% and 3% amid market weakness.