Shares of European luxury goods groups took a hit on Tuesday following a downgrade of L’Oreal by Deutsche Bank. The German bank, led by Tom Sykes, highlighted that L’Oreal is a unique company known for its exceptional marketing and innovation capabilities. The firm’s appealing gross margins and profitability have also been acknowledged. However, concerns regarding a slowdown in China and softer demand for the group’s dermatological beauty brands have caused Deutsche Bank to shift its recommendation from hold to sell.

Deutsche Bank has revised its price target for L’Oreal, reducing it from €385 to €350. As a result, L’Oreal’s stock slipped more than 1%, settling just above €400. In solidarity, other French luxury groups including Kering, LVMH, and Hermes International also experienced slight declines.

The CAC 40 index in Paris was down 0.1%, though losses were tempered by the banking sector’s positive performance. Société Générale saw gains of +1.36% after announcing a partnership with Brookfield Asset Management to establish a $10 billion private credit fund.

Meanwhile, the DAX index in Frankfurt fell 0.3%, but London’s FTSE 100 saw an increase of 0.6%. Notably, Associated British Foods experienced a remarkable 7% gain following the company’s upward revision of its full-year profit outlook.

The Business Landscape

After facing increasing cost pressures for the past two years, there is finally some relief on the horizon for Primark. The retail chain can look forward to better gross margins thanks to the reversal of negative factors such as rising raw material and freight costs, according to Russ Mould, investment director at AJ Bell.

However, Smurfit Kappa SKG, a packaging group listed in London, had a tough time as its stock slid nearly 8%. This decline came after the company announced its plan to acquire U.S. competitor WestRock for a staggering $11.2 billion.

Meanwhile, in the U.K., there were mixed indicators. 10-year gilt yields fell 4.3 basis points to 4.432%, and the pound experienced a 0.4% drop against the dollar, currently standing at $1.2462. These changes followed a report that revealed an increase in unemployment and a slowdown in hiring. However, wage growth matched a record of 7.8%.

This mixed report has created challenges for the Bank of England as it approaches its next monetary policy decision. Traders had been anticipating a rate hike from the BoE, which would mark the 15th consecutive increase. Although there have been speculations that this might be the final hike, the latest wage data shows that inflationary pressure is still evident in the economy, according to James Harte, an analyst at TickMill Group.

The upcoming release of the UK CPI data and the BoE event will contribute to the rising hawkish risks surrounding the decision. Despite this, the pound is expected to remain under pressure in the near term due to deteriorating growth projections for the UK, impacting market sentiment, Harte added.

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