European stocks slip on luxury sector weakness ahead of Fed rate decision

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European stocks fell on Wednesday as investors responded to weakness in the luxury sector and awaited the US Federal Reserve’s interest rate decision later in the day.

Europe’s region-wide Stoxx 600 fell 0.4 per cent in early trade, reversing gains from the previous session, with France’s Cac 40 the biggest faller, down 1.1 per cent as consumer cyclicals stocks led declines.

Shares in Louis Vuitton and Tiffany owner LVMH gave up 3.7 per cent after the company reported a slowdown in the luxury market amid economic uncertainty.

The announcement triggered a sell-off in luxury stocks across the region, with Hermès International down 1.5 per cent and Swiss jewellery maker Richemont down 0.8 per cent. The Stoxx Europe Luxury 10 index lost 1.8 per cent.

Germany’s Dax dropped 0.3 per cent.

In the US, shares in tech giant Microsoft fell 3.8 per cent in after-market trading, as the company reported second-quarter earnings that narrowly beat Wall Street expectations but said that revenue from artificial intelligence products would not show until after the end of the year. Google parent Alphabet, which had also posted forecast-beating results on Tuesday, advanced 6 per cent. 

Meanwhile, the Fed prepared to announce its decision on interest rates later in the day, with the majority of investors expecting a quarter-point increase to take the benchmark rate to a range between 5.25 per cent and 5.5 per cent, its highest since 2001. 

Markets will scrutinise the central bank’s forward guidance to gauge whether this increase will mark the end of the Fed’s 16-month tightening campaign, or whether rates will go up again in September. 

Fed chair Jay Powell is “likely to emphasise that further evidence is needed to be confident that inflation will be tamed”, said Henry Allen, macro strategist at Deutsche Bank.

The policy meeting comes a day after a US Conference Board survey showed consumer confidence climbed to a two-year high in July, adding to signs that the US economy remained resilient to rising borrowing costs. 

In government debt markets, the policy-sensitive yield on two-year Treasuries slipped 0.02 percentage points to 4.87 per cent, and the yield on the benchmark 10-year note fell by the same amount to 3.89 per cent. 

The European Central Bank and the Bank of Japan are due to announce their own policy moves on Thursday and Friday, respectively.

Futures markets signalled that Wall Street’s benchmark S&P 500 was set to open flat on Wednesday, a day after the index hit its highest level in more than a year. Contracts tracking the tech-heavy Nasdaq 100 fell 0.1 per cent.

The moves echoed declines in Asia, where Hong Kong’s Hang Seng index and China’s benchmark CSI 300 both declined 0.2 per cent, a day after government officials in Beijing bolstered equities by vowing to extend more measures to support the country’s stalled economic recovery.