5 things to start your day: Europe

Good morning. European companies are cutting profit targets. The BOE may be set to accelerate asset sales. And Chinese EVs are grabbing mark

View in browser

Good morning. European companies are cutting profit targets. The BOE may be set to accelerate asset sales. And Chinese EVs are grabbing market share. Here's what people are talking about. Please note: Our email domain is changing, which means you'll be receiving this newsletter from noreply@news.bloomberg.com. Update your contacts to ensure you continue receiving it -- check out the bottom of this email for more details.

Cutting profit targets

Many of Europe's biggest companies are lowering profit targets because of weak demand, something that threatens to put this year's stock rally into reverse. Guidance cuts picked up "sharply" this reporting season to be well above the pace for the preceding four quarters, say Bank of America Corp. strategists led by Andreas Bruckner. Nestle SA reduced its sales outlook for the year as consumers struggle with price increases. Gucci-owner Kering SA warned profitability will tumble in the second half on waning luxury demand.  And Mercedes-Benz Group AG trimmed the upper range of a margin forecast because of strong competition in China. Stock analysts were expecting profits would rise 4% year-on-year in 2024 for members of the benchmark Stoxx Europe 600 index, according to data compiled by Bloomberg Intelligence. Those estimates supported the index's climb to new highs, but below-consensus growth could crimp the rally.

Faster quantitative tightening?

The Bank of England's decision to bolster liquidity management tools for major financial institutions has some economists thinking the central bank could maintain, or even accelerate — not slow down — its asset-sales plan under quantitative tightening. The move, if confirmed by the BOE next month, would crystallize losses on bond sales more quickly than currently forecast, potentially adding to strains on the UK Treasury. Some economists thought the BOE might slow the pace of bond sales to avoid unsettling markets following a sharp pick-up in the use of its liquidity operations in recent weeks. That would have given Chancellor of the Exchequer Rachel Reeves as much as £10 billion ($12.8 billion) of extra spending power for struggling public services like prisons, health and local authorities. Instead, economists now expect the BOE to press ahead with existing QT plans or even increase the pace of gilt sales, currently running at £100 billion a year.

UK housing rebounds

The UK housing market is showing signs of a rebound from last year's slump, and a possible interest-rate cut by the Bank of England could boost the confidence of prospective buyers, according to a report by property portal Zoopla. Agreed sales in the four weeks to July 21 rose 16% from a year earlier, while the average agent had 33 homes available for sale, the most in six years, the data showed. That suggests sellers are optimistic. While property prices increased just 0.1% in the past 12 months, Zoopla expects a slow but steady recovery, with an average increase of 2% by the end of the year. Sales in the first half of 2024 were stronger than in 2023 and the pre-pandemic years, the portal's long-run index of weekly sales showed. Prices ticked up slowly across all regions of the UK, reversing declines recorded over 2023, Zoopla said.

Chinese EVs surge

Chinese brands captured 11% of the European electric-car market in June, notching record registrations as manufacturers raced to beat stiff European Union tariffs that took effect early this month. SAIC Motor Corp. led the charge, shipping its MG4 hatchback to dealers in volume, according to analysts at researcher Dataforce, which compiled the figures. Cars registered before July 5 could be sold on to customers without the added duties on imported EVs. Whether the volume gains can be sustained will be closely watched in the coming months, as the added EU tariffs take hold. Carmakers on both continents are rushing to add European EV manufacturing so they can avoid the new duties, while tensions between Beijing and Brussels risk devolving into a trade war.

Brits' holiday happiness

A fifth of Brits say they plan to spend more on holidays as UK consumer sentiment hits its highest level in three years, an encouraging sign for some retailers and travel companies. Confidence rose from minus 5% in March to 0% this month, according to a PricewaterhouseCoopers LLP survey released Tuesday. The increase is a marked improvement from a record low of minus 44% in September 2022, when higher bills put household budgets under pressure. The survey showed spending on travel, fashion and groceries seeing some of the most interest. There's still lingering caution, however. Almost three quarters of Brits are planning to cut back on spending in the next three months — the same proportion as last year, according to the research.

Coming up

Data points to watch today include second-quarter GDP numbers from France, Spain and Germany, Eurozone July consumer confidence and German CPI. Does the US Federal Reserve have any impact on your wallet? Once the Fed starts cutting interest rates, do you think that will make you richer or poorer? Are you planning to increase your exposure to havens or stocks through the end of the year? Share your views in the latest MLIV Pulse survey.

What we've been reading

This is what's caught our eye over the past 24 hours. StanChart expands share buyback as pretax profit beats estimates Baupost opts out of IPO for Bill Ackman's Pershing Square fund Tesla analyst nearly crashes while using full self-driving mode Meloni stakes out mediator role in balancing EU's China ties UK makes pay offer to junior doctors in bid to end strikes Singapore's Temasek to invest $30 billion in US over five years Top Olympic athletes choose cardboard beds over king-size luxury

And finally, here's what Mary is interested in this morning:

European bonds may suffer a setback as the last inflation mile could prove stubborn. An impressive rally over the past month, in line with global debt, needs more than just momentum to continue. The market is pricing in about an 80% chance of an ECB rate cut at its September meeting. In this data-dependent world, the central bank needs more information to continue easing and it's about to receive both inflation and growth figures. The region's GDP should improve for Q2, but the expansion remains mediocre and may justify the need for more stimulus.   But then there's the bank's laser focus on inflation — which is moving closer to the 2% target after peaking at 5.8% just a year and a half ago — and on anchoring expectations. Eurozone 5y inflation swaps also dropped to the lowest level since October 2022. That means it's all moving in the right direction for the ECB, except for services inflation which is holding around 4% since the end of last year. With two inflation readings before the Sept. 12 meeting, the trend for resilience in service sector prices needs to show signs of cracking to convince the hawks that another cut is plausible. In the meantime, any CPI stickiness will force traders to question whether the likelihood of imminent easing is justified. Mary Nicola is a macro strategist for Bloomberg's Markets Live team, based in Singapore.

Follow Us

Stay updated by saving our new email address Gmail: Open an email from Bloomberg, click the three dots in the top right corner, select 'Mark as important.' Outlook: Right-click on Bloomberg's email address and select 'Add to Outlook Contacts.' Apple Mail: Open the email, click on Bloomberg's email address, and select 'Add to Contacts' or 'Add to VIPs.' Yahoo Mail: Open an email from Bloomberg, hover over the email address, click 'Add to Contacts.'

Like getting this newsletter? Subscribe to Bloomberg.com for unlimited access to trusted, data-driven journalism and subscriber-only insights. Want to sponsor this newsletter? Get in touch here. You received this message because you are subscribed to Bloomberg's Five Things to Start Your Day: Europe Edition newsletter. If a friend forwarded you this message, sign up here to get it in your inbox. Unsubscribe Bloomberg.com Contact Us Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022