European stocks hovered below record highs on Wednesday as inflation worries overshadowed data showing a rise in June business activity, while shares in French luxury good makers tumbled on the back of a ratings downgrade from HSBC.

The pan-European STOXX 600 was down 0.2%, with France’s Kering and Hermes falling 2.6% and 1.8%, respectively, as HSBC said the market for luxury goods “might take a break as it really could be as good as it gets.”

The broader retail index tumbled 0.9%.

The French and German bourses were also among the biggest decliners in morning trading even as data showed a boom in June service sector activity in both countries amid easing coronavirus restrictions.

“The (business activity) data doesn’t matter. The only data that matters is inflation,” said Keith Temperton, a sales trader at Forte Securities.

“It’s all about central banks feeding the sugar high to the market and that’s not going to end in a hurry, because if it does, everything will crash.”

The benchmark STOXX 600 pulled back from all-time highs last week following a surprisingly hawkish tone from the U.S. Federal Reserve on inflation and monetary policy.

Economically sensitive sectors including banks, miners and energy have since climbed back up as Fed Chair Jerome Powell reassured markets the central bank would not raise interest rates too quickly based only on the fear of coming inflation.

The so-called value stocks were up between 0.7% and 1.0% by 0805 GMT, while growth-linked technology stocks were unable to hold on to an early rally tracking a record overnight finish in their U.S. peers.

In company news, Pernod Ricard raised its annual profit forecast as the French drinks maker saw a stronger than expected recovery with the removal of COVID-19 curbs, driving its shares to a record high in early trading.

Bank of Ireland fell 5.3% as Finance Minister Paschal Donohoe said the Irish government would begin to sell down part of its 13.9% shareholding in the lender over the next six months, marking the state’s first sale of any bank shares since 2017.
Source: Reuters (Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Shounak Dasgupta)