European stocks fell on Friday, heading for a weekly loss, driven by a significant drop in Kering and concerns over political instability in France and the ongoing conflict in the Middle East. The pan-European STOXX 600 index decreased by 0.23% to 636.27 points by 0840 GMT, following its largest one-day decline in three weeks on Thursday. Currently, the benchmark is down more than 1% for the week.
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Kering's shares plummeted by 11.2% after the company reported a decline in third-quarter sales for its Gucci brand. This drop is attributed to pressures from the conflict in the Middle East and China's crackdown on wealthy individuals, affecting luxury brands. The luxury sector has struggled this year, with a 1.6% decline noted in European markets.
Ipek Ozkardeskaya, a senior analyst at Swissquote, remarked that the European luxury sector continues to be impacted by the war in the Middle East and diminishing demand from China.
Despite these challenges, overall earnings forecasts for European companies have improved. Third-quarter earnings for STOXX 600 constituents are projected to grow by 21.9%, marking the second-highest growth rate in four years and an increase from 20.7% the previous week, largely driven by energy sector firms, according to LSEG I/B/E/S data.
However, rising oil prices have posed challenges for oil-import-dependent European countries, amid significant declines in AI stocks and anxiety over social unrest in France. Plans for business closures over the weekend, including cultural events and museums, are in place as President Emmanuel Macron works to restore order following violent protests last week. Investors are also awaiting a decision from Moody's regarding France's credit rating, set to be announced later today.
Ozkardeskaya cautioned that while the unrest in France has not escalated into a full-fledged European debt crisis, monitoring spread levels will be crucial as disturbances could affect neighboring countries.
Oil prices surged by over 1%, with Brent crude reaching multi-month highs due to recent Houthi attacks in Saudi Arabia, raising fears of supply disruptions from the region.
Looking ahead, the European Central Bank (ECB) is set to meet next week. Investors currently see over a 90% chance that the ECB will maintain interest rates, following two hikes this year aimed at mitigating inflation resulting from high oil prices.
In stock movements, Holcim's shares increased by 5.5% after the Swiss cement manufacturer raised its full-year earnings forecast. Similarly, French food caterer Sodexo saw a 5.5% rise in its stock after reporting better-than-expected full-year revenue.