Chinese stimulus policies have catalyzed a significant surge in stock markets across Europe, particularly benefiting sectors closely linked to Chinese consumer demand, such as luxury and automotive stocks. Notably, both the Euro Stoxx 600 and the DAX reached new record highs, reflecting the optimistic sentiment permeating the markets.
European Market Dynamics
Following the Federal Reserve’s rate cut last week, the positive sentiment continued to buoy global stock markets, significantly enhanced by China’s substantial stimulus measures announced this week. European markets have emerged as the primary beneficiaries of these easing policies, with luxury and automotive stocks experiencing a robust rally.
Major European benchmarks have extended weekly gains, with the Euro Stoxx 600 rising by 0.93%, the DAX climbing by 2.77%, the CAC 40 advancing by 3.22%, and the FTSE 100 increasing by 0.67% over the past five trading days. The rally was particularly pronounced in sectors linked to consumer spending and manufacturing, highlighting the interconnectedness of global markets.
Sector Performances
On Thursday, both the Euro Stoxx 600 and DAX achieved new highs, driven by gains in the luxury consumer and automotive sectors due to Chinese policies. Additionally, technology stocks mirrored trends seen on Wall Street, buoyed by positive forecasts from US chipmaker Micron, which raised its revenue outlook.
Prominent performers over the week included:
LVMH: +11.5%
ASML: +5.38%
Hermès: +13.63%
L’Oréal: +9.91%
Siemens AG: +7.97%
Mining stocks also thrived, bolstered by strong metal prices, with Rio Tinto up by 11.28%, Glencore rising by 8.10%, and Anglo American jumping by 11.70% during the same period.
Conversely, energy stocks struggled due to falling oil prices. Notable declines included Shell down by 6.45%, BP slumping by 7.49%, and TotalEnergies falling by 4.37% over the five-day trading period.
Additionally, shares of Commerzbank surged to a fresh 12-year high following Italian lender UniCredit’s increased stake to 21%. This acquisition raises the prospect of a potential full takeover, especially given the German government’s 12% stake.
Economic Indicators
On the economic front, eurozone business activity in both the manufacturing and services sectors contracted sharply in September, as reported by S&P Global. These weak readings have heightened expectations that the European Central Bank may accelerate rate cuts, further influencing market dynamics.
Wall Street Overview
US stock markets are likely to finish the week on a positive note, supported by the Fed’s recent rate cuts. Over the past five trading days:
Dow Jones Industrial Average: +0.27%
S&P 500: +0.75%
Nasdaq Composite: +1.35%
At the sector level, six out of eleven sectors posted weekly gains, with materials leading the way, up 3.04%, largely driven by surging metal prices. The technology and consumer discretionary sectors also outperformed, rising by 2.4% and 4.61%, respectively. In contrast, the energy sector slumped by 3.48% due to a significant decline in oil prices.
The semiconductor sector regained momentum as Micron’s positive guidance boosted its share price by 13% on Thursday, lifting other chipmakers such as Nvidia and AMD, both rising more than 7% for the week.
Despite the positive stock market movements, the US manufacturing PMI contracted for the third consecutive month in September, and there was a sharp drop in consumer confidence, signaling a potentially gloomy economic outlook. However, GDP growth was confirmed at 3% for the second quarter, and employment data showed promising signs. Markets continue to price in expectations for deeper rate cuts by the Fed.
Asia Pacific Highlights
Chinese stock markets surged following the central bank’s easing measures. Major benchmarks, including the Hang Seng Index, China A50, and the three mainland averages, all soared by more than 10% compared to last week.
The People’s Bank of China (PBOC) announced a 0.5% cut to the Reserve Requirement Ratio and reduced rates on short-term lending facilities. Financial institutions have been given the green light to buy stocks using central bank borrowings, alongside measures aimed at boosting the property market.
Japan’s Nikkei 225 Index also rose by more than 4% as the yen weakened against the dollar following the Bank of Japan’s dovish stance last week. In contrast, the Australian market underperformed global trends, with the ASX 200 lagging due to the Reserve Bank of Australia’s hawkish stance, keeping the cash rate unchanged at 4.35% and reaffirming its restrictive monetary policy to combat inflation. The country’s consumer price index rose by 2.7% in August, remaining above the target level of 2%.
Conclusion
In summary, the markets are experiencing a period of optimism, particularly in Europe and the Asia-Pacific region, buoyed by Chinese stimulus measures and the Fed’s rate cuts. The interplay of these factors is influencing sector performances and overall market sentiment as investors adjust their strategies in response to evolving economic indicators.
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