German Shares Slump 2%, European Index Hits Two-Month Lows

The pan-European STOXX 600 index was down 1.5% by 07:45 GMT, with mining stocks plunging 3.2% on a slide in commodities prices.

Asian equities also skidded following a torrid session for China Evergrande, the world’s most indebted property developer.

The benchmark European STOXX 600 has now fallen for three straight weeks on worries about slowing global growth, soaring inflation, persistently high COVID-19 cases and the spillover from tighter regulation of Chinese firms.

The U.S. Federal Reserve’s policy meeting is in focus on Tuesday and Wednesday, where the central bank is expected to lay the groundwork for a tapering. Overall, 16 central banks are scheduled to hold meetings this week, including in the UK, Norway, Switzerland and Japan.

“To be sure, the (Fed) is set to default to keeping the QE (quantitative easing) spigots open at this week’s (meeting), given the sizable August jobs disappointment alongside a spotting of soft economic indicators,” said Vishnu Varathan, head of economics and strategy at Mizuho.

“But this merely defers taper. By how much is the question.”

German shares tumbled 1.8% to their lowest since late-July as data showed a bigger-than-expected jump in producer prices last month.

In its biggest ever overhaul, the blue-chip German index began trading on Monday with an increase in the number of constituents to 40 from 30.

Europe’s fear gauge jumped to a four-month high.

China-exposed luxury stocks such as LVMH, Kering, Hermes and Richemont fell between 2.5% and 3.7%, extending sharp losses from last week.

Daimler AG shed 2.3% as a report cited the chief of its truck division, the world’s largest, as saying the unit had seen the supply of crucial chips tighten further in recent weeks.

Lufthansa, on the other hand, reversed early declines to jump 3.1% after saying it expects to raise 2.14 billion euros ($2.51 billion) to pay back part of a state bailout that Germany’s top airline received during the coronavirus crisis.

All major European subindexes were lower in morning trading, with healthcare, utilities, food and beverage and real estate posting the smallest declines. The group is perceived to be a safer bet at a time of heightened economic volatility.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Arun Koyyur)

European Stocks Snap 10-Day Rally as China Data Drags

The pan-European STOXX 600 index fell 0.5% to 473.45, easing from a record level scaled last week.

Oil and mining stocks fell about 1.5% each as commodity prices took a hit after Chinese data raised concerns about faltering demand in the world’s major consumer of metals and oil.

China’s factory output and retail sales growth slowed sharply and missed expectations in July as new COVID-19 outbreaks and floods disrupted business operations.

China-exposed luxury names such as LVMH, Gucci-owner Kering and Cartier-maker Richemont fell between 2.1% and 4.6%.

“European markets will pay attention to U.S. and China growth concerns… especially as Europe’s data calendar is almost empty today,” Jeffrey Halley, a senior market analyst at OANDA, wrote in a note.

Optimism around the second-quarter earnings season, a revival in dealmaking and the pace of vaccinations in Europe drove the benchmark STOXX 600 to record highs last week.

“Having seen European markets eke out incremental gains on an almost daily basis since the beginning of the month, it shouldn’t have been too much of a surprise to see a little bit of a pullback at some point,” said Michael Hewson, chief market analyst at CMC Markets UK.

However, major money houses are mixed about the outlook for equity markets, with Bank of America setting a year-end target of 420 points for the STOXX 600, while Goldman Sachs lifted its 12-month target to 520 points.

All eyes now will be on U.S. economic data due this week and the Federal Reserve’s minutes from its July policy meeting to gauge when and how the central bank will start tightening its monetary policy.

A Reuters poll of economists showed the European Central Bank is likely to announce long-awaited plans to reduce its pandemic-related asset purchases in the next quarter.

French car parts supplier Faurecia SE jumped 12.1% after it agreed to acquire a majority stake in German automotive lighting group Hella, trumping rival bidders with a 6.7 billion euros deal.

Hella, whose shares hit a record high last week on anticipation of a deal, slipped 3.4%.

Lufthansa fell 3.6% after the German finance agency unveiled plans to sell up to a quarter of its 20% stake in the airline.

The broader travel and leisure index was down 1.6% as the fast-spreading Delta variant of COVID-19 remained a concern, particularly as many Asian economies imposed movement restrictions.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta and Subhranshu Sahu)

Inflation Woes, Travel Stocks Drag Europe Shares Lower

The pan-European STOXX 600 index fell 0.3% after hitting a record high in the previous session.

Travel & leisure slid 0.8%, with TUI shedding 2.9% on reports that the world’s largest holiday company had cancelled more holidays until August.

UK’s FTSE 100 dropped 0.4% on a stronger pound after data showed British inflation jumped to 2.5% in June, further above the Bank of England’s target and hitting its highest since August 2018.

“The creeping UK headline inflation rate is likely to add to the sense of unease pervading the financial markets about the impact higher prices will have on economies around the world,” said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown.

“Although much of the increases are related to the unusually low level of prices last year due to the pandemic effect, it appears genuine price inflation is also occurring.”

Investors were already nervous after data on Tuesday showed U.S. inflation ran hotter than expected in June, leading many traders to price in faster interest rate hikes.

All eyes now will be on Federal Reserve Chairman Jerome Powell’s congressional testimony starting later in the day.

European Central Bank policymakers have stressed in recent weeks that they will not remove support measures prematurely as the economic recovery is still underway.

Along with euro zone bond yields, the bloc’s banks rallied after sharp falls in the previous session.

Swedish telecoms operator Tele2 gained 4% after it reported an 8% rise in quarterly core earnings, helped by cost savings and lesser pandemic-related headwinds.

German fashion house Hugo Boss jumped 5.1% after it forecast its revenue to grow by 30% to 35% this year.

Italian luxury group Brunello Cucinelli underperformed despite raising its 2021 sales guidance for the second time this year.

German airline Lufthansa slipped 0.6% after it said passenger numbers were currently around 40% of pre-pandemic levels and it was aiming to reach 60%-70% by the end of the year.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sruthi Shankar in Bengaluru; editing by Uttaresh.V and Subhranshu Sahu)

 

Thiele Family to Sell More Than Half its Stake in Lufthansa

KB Holding GmBH, Thiele family’s investment vehicle, will sell 33 million of its 60 million shares, the people said, valuing the offering at 358 million euros ($437.23 million) at Thursday’s market close.

Lufthansa declined to comment. KB Holding could not be reached for comment after regular business hours.

Heinz Hermann Thiele, majority owner of German braking systems maker Knorr-Bremse, died in February at the age of 79.

Thiele had acquired a major stake in Lufthansa and became a highly visible public figure last year when portrayed as the main obstacle to the state bailout the airline needed to survive the coronavirus crisis.

Bloomberg News reported the sale earlier on Thursday.

Earlier this month Reuters reported that the airline was working with Deutsche Bank and Bank of America to sound out investors about a capital increase worth roughly 3 billion euros, possibly as soon as June, to repay a government bailout in 2020.

($1 = 0.8188 euros)

(Reporting by Arno Schuetze and Alexander Hübner; Writing by Radhika Anilkumar; Editing by Richard Chang)

Lufthansa Sees Surge in Demand for Transatlantic, Europe Flights

Demand for summer flights to New York, Miami and Los Angeles has increased by up to 300%, the German airline group said, adding it would lay on extra flights from June and has restarted services to Orlando and Atlanta.

“Because of the great significance of transatlantic air travel for the global economy, we now need a clear perspective on how travel between the USA and Europe can return on a larger scale,” executive board member Harry Hohmeister said.

Falling infection rates and a rising number of vaccinations should allow for a cautious increase in transatlantic air travel, Hohmeister added in a statement, urging Germany to come up with a clear plan to make this possible.

The government in Berlin said earlier this month it wanted to lift quarantine restrictions on Germans who have been fully vaccinated re-entering the country.

But plans for a European Union-wide digital health pass that would provide proof of immunity for travellers are still in the works and it is not expected to be rolled out until late June. It’s also not yet clear how travellers visiting from outside the EU would be covered under the scheme.

Lufthansa, saved last year by a 9 billion euro ($11 billion) government bailout, is also seeing a threefold increase in demand to fly to European holiday destinations such as Greece, Italy, Spain and Portugal.

Lufthansa said that its budget airline Eurowings was arranging an extra 500 flights to Palma de Mallorca, Ibiza and Greece. Lufthansa will also expand its flight schedule on short notice if demand continues to increase, it said.

($1 = 0.8183 euros)

(Reporting by Douglas Busvine; Editing by Kirsten Donovan)

Lufthansa Offers More Than 100 Holiday Destinations This Summer

“This is an absolute record in the group’s history,” he was quoted as saying while also demanding that passengers who have received vaccine shots should face fewer restrictions.

“Some countries are opening their borders for vaccinated individuals. We expect more will join,” Spohr said. “We therefore need international, digital proof of vaccinations and tests to finally replace hardly controllable quarantine measures.”

The travel industry has suffered many false starts to a hoped-for recovery, beset by new restrictions, virus variant outbreaks and a sluggish European vaccine rollout.

Lufthansa this week lowered its capacity forecast for flights this year as hopes dwindle for an early summer travel rebound, but the German airline’s cost-cutting drive narrowed quarterly losses.

(Reporting by Christoph Steitz; Editing by Angus MacSwan)

Lufthansa Don’t Expect Air Travel Demand to Return to Pre-COVID-19 levels Before 2024; Sell With Target Price EUR 5

Lufthansa, the largest German airline company, said they do not forecast a return of air travel demand to pre-COVID-19 levels at least before 2024 after the company posted a quarterly operating loss of 1.7 billion euros in the second quarter despite significant cost reductions, sending its shares down about 2%.

The second-largest airline in Europe in terms of passengers carried said the collapse in demand for air travel due to the COVID-19 pandemic led to an 80% decline in revenue for the Lufthansa Group in the second quarter to 1.9 billion euros, from 9.6 billion euros a year earlier.

In the second quarter of this year, the German airline carried 1.7 million passengers, 96% fewer than in the previous year. Capacity fell by 95%.

Lufthansa’s posted a quarterly operating loss of 1.7 billion euros in the second quarter, worse than last year’s profit of 754 million euros, despite extensive cost reductions. Operating expenses were reduced by 59%, primarily through the introduction of short-time working for large parts of the workforce and the cancellation of non-essential expenditures.

At the time of writing, Lufthansa’s shares traded about 2% lower at 8.05 euros, still down over 50% so far this year.

Executive comments

“We are experiencing a caesura in global air traffic. We do not expect demand to return to pre-crisis levels before 2024. Especially for long-haul routes, there will be no quick recovery. We were able to counteract the effects of the coronavirus pandemic in the first half of the year with strict cost management as well as with the revenues from Lufthansa Technik and Lufthansa Cargo. And we are benefitting from the first signs of recovery on tourist routes, especially with our leisure travel offers of the Eurowings and Edelweiss brands. Nevertheless, we will not be spared a far-reaching restructuring of our business,” Carsten Spohr, Chairman of the Executive Board and CEO of Deutsche Lufthansa AG, said in a press release.

“We are convinced that the entire aviation industry must adapt to a new normal. The pandemic offers our industry a unique opportunity to recalibrate: to question the status quo and, instead of striving for “growth at any price”, to create value in a sustainable and responsible way.”

Lufthansa stock forecast

Morgan Stanley target price is 5 euros with a high of 14 euros under a bull scenario and zero under the worst-case scenario. Sanford C. Bernstein set a 10 euros price objective on Deutsche Lufthansa. The brokerage currently has a neutral rating on the stock.

Several other equity analysts have also updated their stock outlook. HSBC set a 5 euros price objective on Deutsche Lufthansa and gave the stock a sell rating. Oddo Bhf set a 9.50 euros price objective and gave the stock a sell rating. UBS Group set a 5.85 euros price objective and gave the stock a sell rating.

We think it is good to sell at the current level and target at least 5 euros in the short-term as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong selling opportunity.

The one listed on the U.S. stock exchange is expected to rise to $9.45 in 12 months, two analysts forecast, with a high forecast of $9.45 and a low forecast of $9.45. The average price target represents a -2.48% decrease from the last price of $9.69. Both recommended to ‘Sell’.

Analyst comment

“While we think Lufthansa has been quick in reducing costs and extending payment terms with suppliers, we think the loss generated by the Covid-19 pandemic (of c€6bn, on our base case estimates) will be difficult to absorb with free cash flow generation and is not yet fully discounted in the share price,” said Carolina Dores, equity analyst at Morgan Stanley.

“Lufthansa’s large owned fleet and diversified business mix (maintenance, freight and catering business) could give it better flexibility on balance sheet repair and self-help compared to AF-KLM; however, all businesses would be negatively affected by the pandemic and therefore we think much of its balance sheet repair flexibility has been constrained,” the analyst added.

Upside and Downside risks

A stronger recovery of demand once travel bans are lifted; Greater cost-cutting than we have anticipated; Faster market consolidation and, therefore, higher unit pricing environment, Morgan Stanley highlighted as upside risks to Lufthansa.

Failure to secure the German government’s stabilization loan; Higher cost of ramping up operations Delayed turnaround of Eurowings due to stronger competition in the group’s routes, were the major downside risks.