European shares edge up as energy, materials gain ahead of cenbank meetings

European shares edged higher on Friday as energy and materials stocks rose ahead of central bank meetings next week, while luxury goods maker LVMH hit another record high on strong sales. The pan-European STOXX 600 extended its gains to a second day, adding 0.1%, and was on track to end the week marginally higher.

European shares edged higher on Friday as energy and materials stocks rose ahead of central bank meetings next week, while luxury goods maker LVMH hit another record high on strong sales.

The pan-European STOXX 600 extended its gains to a second day, adding 0.1%, and was on track to end the week marginally higher. Shares of LVMH added 0.6% after falling 2.2% earlier in session, as strong U.S and European demand offset a slowdown in China helping the company top fourth-quarter sales estimates.

Other luxury groups such as Compagnie Financiere Richemont SA, Kering SA and Moncler SpA rose between 1.8% and 2.2%. H&M, the world's second-biggest fashion retailer, reported a much larger-than-expected drop in operating profit for the September to November period, slammed by soaring costs and weakening consumer confidence, sending its shares down 5.9%.

"While the results may look somewhat weak, it's not capturing the momentum that we're expecting from China's reopening now," said Gerry Fowler, UBS' head of European equity strategy, flagging the scope for earnings upgrades in the luxury sector throughout the year. SSAB gained 10.3% as the Swedish steelmaker announced higher dividend and proposed stock buyback after reporting fourth-quarter results broadly in line with estimates.

Signify recouped early losses and advanced 4.2% on encouraging profitability outlook for 2023, but the lights maker did not offer sales forecast, citing a difficult macro environment. Sainsbury rose 4.6% after retail group Bestway disclosed a 3.45% stake in the British supermarket group.

Earnings for STOXX 600 companies are expected to have increased 9.5% on an annual basis in the fourth quarter, down from 14.5% seen at the start of January, Refinitiv data showed. The index has rallied around 7% this month after dropping nearly 13% in 2022, boosted by hopes of economic resiliency and expectations that major central banks would slow their aggressive interest rate hike campaigns.

"There is a real improvement in the activity in Europe that's beyond expectations, and it is taking our recession probability down for Europe to about 35% now," Fowler added. The upcoming week is marked by prominent central bank meetings including the Federal Reserve, the European Central Bank (ECB) and the Bank of England.

The ECB will deliver 50 basis point of interest rate hikes at each of its next two meetings, according to economists polled by Reuters, whose forecasts still risk lagging behind policymakers' guidance on how high rates will go.

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