DE40: Fashion stocks under pressure from China data and corporate warnings 💡

• European indices fall at the start of the week
• Fashion companies under pressure from China data and corporate warnings
• Swatch reports dismal results for H1 2024

General market situation:

Monday's session on European stock markets is marked by declines in fashion stocks. Weak GDP data and China's retail sales report led to a pullback on companies with sizable exposure to Asian markets. Germany's DAX is currently losing 0.5%, France's CAC40 is down nearly 0.6%, and Britain's FTSE100 is down more than 0.35%. The macro calendar for today's session is relatively empty. 

European companies with sizable selling exposure to Chinese markets. Source: Bloomberg Financial LP

Volatility currently observed in the DAX index. Source: Bloomberg Financial LP

Germany's benchmark DE40 is trading nearly 0.2% lower for the first session this week. The index is currently negating the structure of the downward trend initiated on May 16. The continuation of the downtrend has led to the testing of a historically important support level in the zone of the 100-day exponential moving average (purple curve on the chart, all the while it remains a key support point). Locally, the most important resistance, after piercing the 50-day EMA (blue curve) and the zone of the July 5 peak (combined with the peak of April 2 this year), is now the historical peak at 19,000 points. Source: xStation

News: 

Swatch (UHR.CH) shares are currently losing nearly 11%, the most since March 2020. The Swiss watch maker reported disappointing H1 results due to weak demand in China and currency effects. 

H1 results

• Operating profit CHF 204 million, -70% y/y, forecast CHF 500.2 million 
• Operating margin 5.9%, forecast 13.4%
• Watch and jewelry operating margin 11%, estimate 15.8%
• Net sales CHF 3.45 billion, estimate CHF 3.77 billion
• Sales at constant exchange rates -10.7%, estimate +1.86%
• Net profit CHF 147 million, estimate CHF 383 million

Comments:

• Group expects significant improvement in the second half of the year
• Sales decline due to sharp drop in demand for luxury goods in China
• Strongly negative operating result in the manufacturing segment in the short term due to deliberate maintenance of all production capacity and abandonment of layoffs
• "In June, the Group's operating margin rose again to over 15%, which is a positive sign for the second half of 2024
• Continued strong growth is expected in Japan and the US in the second half of 2024.
• The full positive impact of the cost reduction program implemented at the beginning of the year will be felt in the second half of the year
• The group expects the Chinese market to remain a challenge for the luxury goods industry as a whole until the end of the year

Burberry (BRBY.UK) has announced that it expects its financial results to be below consensus, and if this trend continues in the current quarter, it would expect to report an operating loss in H1 FY25, and operating profit in H1 FY25 to be below current consensus. The company's shares are losing more than 17% today. 

Lufthansa (LHA.DE) shares are losing more than 2% after Stifel downgraded the company's stock to sell following Friday's profit warning on the German airline. The broker lowered its target price to €4.50 from €7, the lowest target price among analysts tracked by Bloomberg.

Other news coming out of individual companies in the DAX index. Source: Bloomberg Financial LP