Telecom deals in focus as European stocks slip from highs

September 7, 2021

By Sruthi Shankar

(Reuters) – European stocks slipped from recent highs on Tuesday as a flurry of deals in the telecom sector led by Deutsche Telekom was offset by caution ahead of a European Central Bank meeting later this week.

The pan-European STOXX 600 index slipped 0.3% after coming close to a record high in the previous session. Utilities, media and chemical stocks were among the top decliners.

Spurring moves in the telecom space, Deutsche Telekom struck a share-swap deal with Softbank Group to increase its stake in U.S. unit T-Mobile.

The company and Swedish telecoms operator Tele2 also agreed to sell their Dutch unit to private equity groups for an enterprise value of 5.1 billion euros ($6.05 billion).

Dutch peer KPN gained more than 4%, while UK’s BT rose 2% on news Deutsche Telekom is weighing options for its 12% stake in the company.

The wider telecoms index inched up 0.1%.

However, caution prevailed ahead of the ECB meeting on Thursday, with a recent surge in euro zone inflation and improving economic data driving bets of tighter monetary policy.

“It’s believed that the ECB is discussing tapering their PEPP purchases. If it is, then investors will look for signs that they are going to compensate by making purchases through other schemes,” said Andrea Cicione, head of strategy at TS Lombard.

“The reason they wouldn’t want to get ahead of the Fed is because any hawkish remark by Lagarde or the ECB would cause even more strength in the euro, which would be negative for European growth.”

The benchmark STOXX 600 has gained almost 19% so far this year, slightly lagging New York’s S&P 500, as relatively high rates of vaccination brightened the recovery outlook, with many people returning to offices following sweeping restrictions last year.

Hopes of more economic stimulus for China and Japan, as well as growing views the U.S. Federal Reserve is likely to delay the start of tapering its asset purchases pushed world stocks to record highs earlier.

Luxury stocks including LVMH, Richemont, and Kering rose more than 1%.

The world’s largest inter-dealer broker TP ICAP Group fell 7% after reporting a lower half-year profit.

Upmarket fashion retailer Ted Baker climbed 2% as sales surged during the second quarter as customers returned to shops after months of coronavirus restrictions.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta and Louise Heavens)

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