European equities edged higher on Friday, ending their longest losing streak since February 2018, as luxury stocks rebounded.
The Stoxx 600 Index closed 0.2% higher in London, with LVMH providing the single biggest boost as the luxury goods stock rebounded following recent losses on worries over a slowdown in China. Among sectors, consumer stocks and travel and leisure stocks were the top gainers.
However, the positive day caps off what has been a seven-day losing streak for Europe’s benchmark equity index. Higher interest rates threaten to tip Europe into 1970s-style stagflation, with the economy sinking into a downturn and inflation running above 5%, and those worries have been weighing on equity markets.
“The risk of stagflation is coming back very strongly in Europe,” said Alexandre Hezez, chief investment officer at Group Richelieu, a Paris-based asset manager. “The market is afraid of the negative jaw effect between significant inflation and the risk of recession.”
What’s more, technicals are also flashing amber. The euro-area benchmark Euro Stoxx 50 closed below its 200-day moving average on Thursday for the first time since early 2022 and is testing a major support level around 4200, in place since May.
This week has seen the rally in Europe’s equities tested. Investors are tracking slowing growth and sticky inflation in the region, with central banks expected to hold rates higher for longer. The focus next week will turn to the European Central Bank’s meeting and US inflation data.
Among individual stock moves, Computacenter Plc shares jumped after the IT reseller reported first-half results that beat market expectations, while D’Ieteren gained after the Belgian automobile distributor raised its forecast for adjusted pretax profit for the full year.
“The ECB is already in its pre-meeting blackout period, and the Fed will follow this weekend. The data calendar is light today which may leave markets with more room to contemplate the busy week ahead with a US inflation theme and the chance for another, possibly final ECB hike,” said Benjamin Schroeder, senior rates strategist at ING Bank NV.
European equities experienced a 26th week of outflows with $66 million leaving funds focused on the region, according to a Bank of America note citing EPFR Global data.
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