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Europe: Defensive stocks help close higher as focus turns to US stimulus

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European shares closed modestly higher on Tuesday, as investors assessed a batch of mixed earnings reports while holding out for more US stimulus to limit the economic damage of Covid-19.

[BENGALURU] European shares closed modestly higher on Tuesday, as investors assessed a batch of mixed earnings reports while holding out for more US stimulus to limit the economic damage of Covid-19.

The pan-European Stoxx 600 rose 0.4 per cent, with defensive sectors such as healthcare, food & beverage and utilities boosting the main index. Travel stocks rebounded from losses on Monday when worries of a resurgence in coronavirus cases in Europe hit risk sentiment.

Investors awaited the conclusion of a US Federal Reserve meeting on Wednesday, when policymakers are expected to reiterate their supportive stance as talks loom over another round of fiscal stimulus for the US economy.

"Even if tomorrow is unlikely to be the right moment for a more expansionary monetary policy approach, the Fed will no doubt sound prepared for further easing," Commerzbank analysts told clients in a note.

Earnings season also kicked into high gear in Europe, with luxury giant LVMH sliding 4.1 per cent as store closures sparked by the pandemic tore a hole into the Louis Vuitton owner's second-quarter sales.

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Gucci owner Kering and France's Hermes slipped over 2 per cent, while Moncler, which makes luxury puffer jackets, shed 4.4 per cent after reporting a first-half operating loss for the first time in its history.

Profits for companies listed on the Stoxx 600 are expected to drop by a record 59 per cent in the second quarter, according to Refinitiv data.

But with much of the decline priced in, European stocks are on course to end July with gains, supported by a European Union deal to jointly issue bonds to combat the economic fallout of the pandemic and hopes of a Covid-19 vaccine.

"Q2 will be the bottom of the earnings cycle most probably, and the expectations were quite gloomy and that's why we are having some nice surprises on results," said Michele Morganti, senior equity strategist at Generali Insurance Asset Management.

"The confidence in European assets can be sustained by the approval of the recovery fund."

Peugeot maker PSA Group rose 2.4 per cent as it held on to its margin target despite a fall in profitability in the first half of 2020.

Online takeaway food company Delivery Hero SE jumped 2.4 per cent after it raised its forecast for 2020 sales after nearly doubling quarterly revenues.

British housebuilders jumped 2 per cent after a report that the UK government is drawing up extension to its Help to Buy scheme, which makes it easier for first-time buyers to afford a home.

REUTERS

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