Core assets boost European stocks: Strong earnings reports from LV and SAP AG-Sponsored, French and German stock indices take turns hitting new highs this week.

Positive news has been frequent in the European stock market since the beginning of the year.

On Wednesday, improved expectations for Chinese demand and a strong earnings report sponsored by SAP AG drove the German stock market soaring.

On Thursday, European Central Bank President Lagarde's dovish remarks increased market expectations for interest rate cuts in the Eurozone in 2024.

On Friday, LVMH's strong performance lifted the European luxury goods sector, leading to a rise in all three major European stock indices. The French CAC 40 index, dominated by the luxury goods industry, surged 2.3%, the German DAX index rose 0.3% to a new high for the year, and the FTSE 100 index in London also recorded a 1.4% increase.

At the same time, the broader European Stoxx600 index also rose by 1.1%, reaching its highest level since January 2022.

LV and SAP AG-sponsored earnings reports have driven the German and French stock indices to take turns hitting new highs.

(1) Strong performance by luxury giants, French CAC 40 index hits historic high

After LVMH announced its better-than-expected 10% revenue growth in the fourth quarter, the company's stock price soared 12.8% at the opening, driving up the overall luxury goods sector in European stocks, with companies like Kering and Hermès seeing their stock prices rise.

Under this positive sentiment, the French CAC 40 index, dominated by the luxury goods industry, surged 2.3%, setting a new historical high.

Market analysis suggests that LVMH's fourth-quarter sales data exceeded expectations, not only alleviating concerns about the impact of global economic slowdown on the luxury goods industry but also injecting a strong boost into the entire industry, demonstrating the resilience of the luxury goods industry during an economic downturn.

Barclays Bank has also upgraded its rating on European luxury goods stocks to "buy". Emmanuel Cau, head of European stock strategy at the bank, said that luxury goods stocks have lagged behind in the market rally in November and December last year. "This provides investors with a good opportunity to enter the market," he added.

Jelena Sokolova, Senior Equity Analyst at Morningstar, analyzed that the performance of the luxury goods industry this year and next year will depend on the Chinese market: "The key to this year's and next year's performance is actually China. Although Chinese consumers have sufficient savings, their travel frequency to Europe has not yet returned to pre-pandemic levels. If they have more confidence, they may spend more money."

(2) Improved expectations for Chinese demand and strong performance of SAP AG-Sponsored drive the German DAX index to new highs

Investors generally believe that Germany, as the largest economy in Europe, is highly sensitive to the demand from China. Therefore, after the People's Bank of China announced the loosening of monetary policy on Wednesday to stimulate economic growth, the DAX index soared to 16,864 points, surpassing the historical high set at the end of last year.

On Wednesday, boosted by the expectation of improved Chinese demand, the share prices of German car companies benefiting from the Chinese consumer market, including Volkswagen, Porsche, Mercedes-Benz, and Daimler, all rose by 1% to 3%.

In addition, the impressive performance of software giant SAP AG-Sponsored also added momentum to the market. As the largest component stock in the DAX index, accounting for over 10%, SAP AG-Sponsored saw its stock price surge nearly 8% to a historic high after announcing a 94% increase in operating profit for the fourth quarter and plans to cut 8,000 jobs to improve profitability.

2. Lagarde's speech boosts market, ASML Q4 order income hits record high

This week, the good news in the European stock market is not only the impressive performance of major core assets, but also the positive impact brought by the dovish speech of ECB President Lagarde on Thursday.

After the European Central Bank kept interest rates unchanged, Lagarde stated that there are signs of wage growth slowing down, and "the deflationary process is taking effect." Subsequently, traders increased their bets on interest rate cuts in the eurozone in 2024.

In addition, it is worth mentioning that ASML's strong performance on Wednesday also provided support for European stocks. As mentioned by Wall Street News, the leading lithography machine manufacturer ASML reported a significant increase in performance, with net profit for the fourth quarter exceeding expectations and order volume tripling MoM to reach a record high. After the financial report was released, ASML's European stocks surged by 7% at one point, marking the largest increase since November 2022.

According to analysis, the strong performance of the "barometer of the semiconductor industry's health" indicates the recovery of the semiconductor industry. Read more