European shares trade below record highs, deals boost telecom stocks

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European stocks hovered below record highs on Tuesday as caution ahead of a European Central Bank meeting later this week offset gains in the telecom sector following Deutsche Telekom deals.

The pan-European STOXX 600 index slipped 0.2% after reaching just a point below its August peak in the previous session.

Media and utilities fell the most among sectors, while telecoms gained 0.3%.

Deutsche Telekom rose 1% after it struck a share-swap deal with Softbank Group to increase its stake in U.S. unit T-Mobile and sold its Dutch unit.

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Dutch company KPN gained almost 4%, while UK’s BT rose 2% on news Deutsche Telekom is weighing options for its 12% stake in the company.

Investors appeared to be largely on the sidelines ahead of the European Central Bank (ECB) meeting on Thursday, with a recent surge in euro zone inflation and improving economic data, despite a surge in COVID-19 cases, driving bets of tighter monetary policy.

“It’s believed that the ECB is discussing tapering their PEPP purchases. If it is, then investors will look for signs that they are going to compensate by making purchases through other schemes,” said Andrea Cicione, head of strategy at TS Lombard.

“The reason they wouldn’t want to get ahead of the Fed is because any hawkish remark by Lagarde or the ECB would cause even more strength in the euro, which would be negative for European growth.”

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Meanwhile, hopes of more economic stimulus for China and Japan, as well as growing views the U.S. Federal Reserve is likely to delay the start of tapering its asset purchases pushed world stocks to record highs.

Luxury stocks including LVMH, Richemont, and Kering rose more than 1%.

Germany’s Allianz slipped 0.3% after Reuters reported regulators have launched an investigation into the company after the demise of some of its U.S. investment funds last year.

The world’s largest inter-dealer broker TP ICAP Group fell 6% after reporting a lower half-year profit.

Upmarket fashion retailer Ted Baker climbed 2% as sales surged during the second quarter as customers returned to shops after months of coronavirus restrictions in search of new clothes. (Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta)