European shares subdued after hawkish remarks from ECB’s Lagarde

By Amruta Khandekar

(Reuters) -European shares were muted on Tuesday as gains in shares of luxury giants and financial firms on hopes of more policy stimulus from China were countered by hawkish comments from European Central Bank President Christine Lagarde.

The pan-European index was down 0.05% by 8:40 GMT, following six straight sessions of losses.

China’s Premier Li Qiang said the country’s economic growth in the second quarter would be higher than the first and was expected to reach the annual economic growth target of around 5%.

The comments brought some relief to investors concerned in recent days by smaller-than-expected rate cuts from China, political instability in Russia after a failed mutiny as well as a potentially protracted global interest rate hiking cycle.

“Markets are expecting either the data to improve from China or stimulus to increase from the government. But that good stimulus news is priced in and any sort of good news that I would need to see to send markets significantly higher in China would be some kind of positive domestic growth story,” said Giles Coghlan, chief market analyst at HYCM.

The financial sector was the biggest boost to the STOXX 600 due to gains in China-exposed firms such as insurer Prudential Plc, while luxury giants such as LVMH, Richemont and Hermes, which also have exposure to China, advanced between 0.3% and 0.8%.

Kering (PA:) shares rose 1.1% after the Gucci owner signed a deal to buy high-end French fragrance label Creed from funds controlled by BlackRock (NYSE:).

JD (NASDAQ:) Sports Fashion, however, fell 4.8% to the bottom of the index after the company flagged some softening in trade in its North American business in June.

Meanwhile, the ECB is unlikely to call a peak in interest rates in the near future and it should not waver in its fight against inflation, President Lagarde said on Tuesday at a conference.

“After the last meeting, the ECB made it very clear that they’re expecting to have an interest rate hike in July and from that point on, they’re going to be data-dependent. What they’re doing is they’re buying time until the next significant inflation data point,” said HYCM’s Coghlan.

Meanwhile, the healthcare index was dragged down by shares of kidney dialysis group Fresenius Medical Care (NYSE:), which fell 3.9% after a payment increase proposed by a major U.S. public health insurance body fell short of market expectations.