Chips and luxury lead the way lower

A look at the day ahead in European and global markets from Ankur Banerjee

European chip and luxury stocks will be at the forefront of investors' minds on Wednesday, and for all the wrong reasons, after lacklustre earnings from the region's biggest tech firm ASML and luxury bellwether LVMH dragged shares lower.

Chip stocks around the world sank after ASML forecast weak 2025 sales and said that, while AI-related chips are booming, other parts of the semiconductor market are not, which the Dutch firm said is making many of its chipmaker customers cautious.

ASML is the world's biggest manufacturer of chipmaking equipment, with customers including AI chipmaker TSMC, logic chipmakers Intel and Samsung, and memory chip specialists Micron and SK Hynix.

Little wonder, then, that its dour outlook triggered a succession of chip stock sell-offs in Europe, the U.S. and Asia. The European tech stocks index sank 6.5% on Tuesday, its biggest one-day drop in four years.

Stocks on Wednesday may stabilise, but expect sentiment to be weak through the day.

Investors will also watch for how luxury stocks react after LVMH reported a decline in quarterly sales for the first time since the pandemic, as consumer demand in China weakened.

That has added to investors' wall of worries over a sector that is heavily dependent on China, and taken the steam out of a recent rally in luxury stocks that followed news on Chinese stimulus measures.

Chinese consumer confidence has slumped back to the all-time lows of the COVID-19 era, LVMH Chief Financial Officer Jean-Jacques Guiony said.

Scepticism had already been building among investors over whether China would follow through with extensive details and strong fiscal stimulus measures to revive the sputtering economy.

China was also a theme for ASML, which got 47% of its total revenue in the latest quarter from China but expects that contribution to come down to 20% in 2025.

Investors will be eyeing a Beijing press conference (yes, another one) on Thursday, this time to discuss promoting the "steady and healthy" development of the property sector.

On the macro side, UK September inflation data is due later in the day and will help to chart the Bank of England's likely path at next month's policy meeting, with markets leaning towards a rate cut.

Data on Tuesday showed that British pay grew at its slowest pace in more than two years in the three months to August and that job vacancies fell again, keeping a rate cut from the central bank on track.

Key developments that could influence markets on Wednesday:

Economic events: UK September CPI and PPI

(By Ankur Banerjee in Singapore; Editing by Edmund Klamann)