European stock markets conclude lacklustre month with mixed results

September proved to be a pivotal month for global stock markets as the Federal Reserve began its easing cycle with a significant 0.5% rate cut, while China launched the largest stimulus package ever, further enhancing risk-on sentiment in the last week of the month.

In Europe, the European Central Bank (ECB) implemented its second rate cut of the year, meeting market expectations.

In line with these global developments, major European benchmarks posted strong gains last week, with both the Euro Stoxx 600 and the DAX reaching new highs on Friday.

However, on a monthly basis, these indices ended the month mixed: the Pan-Euro Stoxx 600 declined by 0.28%, the DAX rose by 2.08%, and the CAC 40 fell by 0.14%.

European markets lag global peers in the month

Overall, European stocks underperformed compared to their global peers in September, primarily due to a lack of catalysts in the local markets and ongoing political uncertainties.

In contrast, three benchmarks on Wall Street – the Dow Jones Industrial Average, the S&P 500, and the Nasdaq – rose between 1.9% and 2.7% for the month, concluding a positive month and quarter. The S&P 500 and Dow also reached new highs on Monday.

Chinese stock markets surged by 20% in one month following the People’s Bank of China’s announcement to cut several key lending rates, reduce the Reserve Requirement Ratio, and inject cash directly into the stock markets.

This suggests that European stock markets are largely reactive to external events and reliant on global influences, which may compel the ECB and governments to continue focusing on single-market unity and enhancing competitiveness with the US and China.

Meanwhile, major economies in the Eurozone continue to experience economic stagnation and political instability, which is likely to reinforce the ECB’s need to cut interest rates further.

Consequently, European markets may maintain their upward trends in response to these macroeconomic developments.

Luxury consumer stocks continue to shine

A notable trend that emerged in the last week was the surge in European luxury consumer stocks, driven by China’s easing policies.

The Stoxx Euro Luxury 10 index rose by 13% last week, marking its best weekly performance of the year and leading the sector to a 12% increase in September.

This index also emerged as one of the top performers in the Pan Euro Stoxx 600. Shares of LVMH, Hermès, and Richemont all soared by more than 16% week on week, despite a flat monthly performance.

It is worth noting that Hermès and Richemont have risen by 14% and 17% year to date, significantly outperforming Europe’s largest luxury brand, LVMH, whose shares are down by 7% this year.

This disparity highlights how high-end powerhouses, particularly Hermès, have fared well despite sluggish demand in China.

Hermès, known for its Birkin bags, saw sales jump by 7% in the first half of the year in Asia and surge by 15.6% in Europe, with Chinese tourists contributing the most to revenue. In contrast, sales of LVMH and Richemont fell by double-digit percentages in Asia during the same period.

Other luxury brands, such as Burberry and Kering, have been significantly impacted by declining Chinese consumer demand, with their shares down by 48% and 36% year to date, respectively.

The uneven performance of European luxury stocks suggests that affordable luxury brands are more dependent on demand from China’s middle class, while high-end luxury sales are less affected by the overall state of the Chinese economy.

Consequently, the long-term trajectory of the sector will continue to align with China’s economic recovery and consumer demand. Until there is tangible growth in the real economy, the sector’s rebound may not be sustainable.