European markets: Car makers lead gains on hopes of tariff reversal

CGTN Europe

CGTN Europe spoke to Daniela Hathorn, Senior Market Analyst at Capital.com.

Transcript

00:00Daniela Haythorn is a senior market analyst at Trading Platform Capital.com.

00:05Great to have you on the programme.

00:07So let's start with the auto sector.

00:10Something to help some of the car companies is brewing, says Trump.

00:15Will the positive market momentum last?

00:20Well, that is the key question.

00:22I mean, the thing is with Trump, we get these comments,

00:25these kind of concessions that he gives,

00:27and he says, oh, I'm considering modification to this 25% tariff,

00:31but we don't have any clear indication of what exactly this means.

00:35Is this a reduction in the tariff?

00:36Is this scrapping the tariff completely?

00:38Is he going back to that basic 10%?

00:41So, yes, there's a bit of positivity in there,

00:43and markets are at a time where they're taking any chance they can

00:46to kind of attract that positivity and reverse some of the losses,

00:50the heavy losses that we saw last week.

00:52But we just really don't know exactly what this means yet.

00:55So as long as investors and markets think that there's a potential deal down the line,

01:01I think the positivity lasts.

01:03Whether we do get that or not, it stands to be seen yet

01:05when we get more information from Trump.

01:07Is it the luxury car makers who are the most exposed,

01:11like Ferrari, like Porsche,

01:12or are there going to be ripples right through the auto supply chain?

01:17I think we're going to see ripples through.

01:19I think this is a global factor.

01:23Of course, it focuses specifically in the European sector.

01:25We do have a lot of high-end luxury cars,

01:28but I think we're going to see it's going to be felt everywhere.

01:31We're seeing already in the markets today,

01:33and that's having a ripple effect, as you were saying,

01:35on the general sentiment in European markets,

01:38in the DAX, in the Stock 600.

01:40So I think, look, as long as we have these hopes that a deal is in progress

01:45and the fact that Trump is considering pulling back on some of these tariffs,

01:49then I think we could see this momentum continue,

01:52but it is definitely broad-based for now.

01:54The luxury sector more generally,

01:56it's reliant on global supply chains.

02:00So let's talk about the upset at LVMH,

02:03the world's largest luxury group,

02:05and at one point, Europe's biggest company.

02:09Is that about U.S. consumers, about Chinese consumers, both?

02:14It's a bit about both.

02:16Now, interestingly enough, LVMH has actually lost their position today

02:19as the biggest, by market capitalization,

02:22the biggest luxury brand in Europe to Hermes,

02:24and that to some extent talks about the disappointment in markets

02:29of these earnings, dropping around 7% their shares.

02:32Now, I think the issue here is we've seen sales drop in the U.S.,

02:35we've seen sales drop in Asia,

02:37and I think we were expecting it to some extent

02:39because we know that demand has been slowing for some time,

02:43we know that recession is maybe somewhere in the distance,

02:47but we have seen growth slow across the globe.

02:50Now, we know China was likely to be the biggest disappointment,

02:53but I feel like especially European luxury companies

02:56were hoping that U.S. consumers,

02:58given the resilience of the U.S. economy,

03:01we're going to pick up some of that lack of growth in China.

03:03And, of course, the tariff situation just complicates this.

03:06So, in terms of sentiment, again, weaker sales, weaker outlook,

03:10and the fact that we still don't know what's happening with tariffs yet,

03:13I think that's what led to the biggest disappointment in markets.

03:15I mean, has the damage been done,

03:17or is there any glimmer of hope to restore that waning consumer confidence?

03:22Because there are headwinds, aren't there?

03:24All of these signs pointing towards recession and people tightening their belts.

03:30Yeah, indeed.

03:30I mean, there are real concerns about recession, global recession.

03:34I think markets react specifically to that real thread of what exactly is going to happen

03:38to the global economy because of the effect of these tariffs.

03:41Now, one thing to think about with luxury brands is they usually do have a higher margin

03:46to be able to adjust their prices and their earnings margin.

03:51So, we could see potentially a revamp in sales if we saw a restructure in the cost structure.

03:56But, again, it does limit the amount the company can do,

04:01given that sales were already slowing, let alone adding the fact that now it's going to be hard

04:07for them to be able to forecast any pricing if they still don't know exactly what their price point

04:12is going to be for certain consumers across the globe.

04:14Interesting stuff.

04:15Daniela Haythorn at Capital.com.

04:18Great to talk to you.

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