Stocks Rally as China Stimulus Spurs Risk Appetite: Markets Wrap

(Bloomberg) — European stocks and US equity futures advanced after a slew of stimulus measures from China aimed at shoring up economic growth spurred investor appetite for riskier assets.

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The Stoxx Europe 600 Index rose 0.8%, led by sectors with heavy exposure to China, including miners, luxury goods makers and automakers. Brent crude neared $75 a barrel and iron ore prices climbed, boosting the shares of Rio Tinto Plc and BHP Group Ltd. US equity futures pointed to gains at the Wall Street open and Treasuries declined.

Risk sentiment got a boost from China’s broad package of monetary stimulus on Tuesday, which included reduced reserve requirements for banks and at least 800 billion yuan ($114 billion) of liquidity support for stocks. While the news from Beijing helped offset Monday’s weak economic data out of Europe, Goldman Sachs Group Inc. strategists warned that the region’s stocks could take a hit from the slowdown, even if the European Central Bank pushes on with rate cuts.

The announcement “is changing the sentiment” around European equities, Michael Sneyd, global head of FX strategy and cross asset strategist at BNP Paribas, said on Bloomberg TV. “But it takes time for the economic impact of stimulus in China to feed through to support Europe. That China stimulus news is probably not enough to take off those downside risks in the European economy just yet.’

The policy blitz from China sent a gauge of the nation’s stocks to its best day since July 2020 and helped lift the MSCI Inc. index of emerging-market equities by more than than 1%.

The measures included a cut to a key short-term interest rate and plans to reduce the amount of money banks must hold in reserve to the lowest level since at least 2018, as well as other steps including a package to shore up the nation’s troubled property sector.

Oil prices climbed on news of the support and as a major Israeli strike on Hezbollah targets in Lebanon kept tensions high in the Middle East. Gold hit a fresh record of $2,636.16 per ounce during Asian market hours.

The steps revealed by People’s Bank of China Governor Pan Gongsheng came after several Federal Reserve officials on Monday appeared to leave the door open to additional large rate cuts in the US.

Chicago Fed President Austan Goolsbee said that, with inflation approaching the central bank’s target, the focus should turn to the labor market and “that likely means many more rate cuts over the next year.” Neel Kashkari at the Minneapolis Fed also pointed to weakness in the job market, saying he backs lowering interest rates by another half percentage point by year end.

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Traders have been wagering on nearly three-quarters of a point of policy easing by year-end, suggesting at least one more major rate cut is in store. Investors are now awaiting data on the Fed’s preferred price metric and US personal spending later this week for further clues on the depth of future reductions.

Key events this week:

• Japan Jibun Bank Manufacturing PMI, Services PMI, Tuesday

• Mexico CPI, Tuesday

• Bank of Canada Governor Tiff Macklem speaks, Tuesday

• Australia CPI, Wednesday

• China medium-term lending facility rate, Wednesday

• Sweden rate decision, Wednesday

• Switzerland rate decision, Thursday

• ECB President Christine Lagarde speaks, Thursday

• US jobless claims, durable goods, revised GDP, Thursday

• Fed Chair Jerome Powell gives pre-recorded remarks to the 10th annual US Treasury Market Conference, Thursday

• Mexico rate decision, Thursday

• Japan Tokyo CPI, Friday

• China industrial profits, Friday

• Eurozone consumer confidence, Friday

• US PCE, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.8% as of 9:34 a.m. London time

• S&P 500 futures rose 0.3%

• Nasdaq 100 futures rose 0.4%

• Futures on the Dow Jones Industrial Average rose 0.2%

• The MSCI Asia Pacific Index rose 0.9%

• The MSCI Emerging Markets Index rose 1.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.3% to $1.1139

• The Japanese yen fell 0.6% to 144.54 per dollar

• The offshore yuan rose 0.3% to 7.0385 per dollar

• The British pound rose 0.2% to $1.3369

Cryptocurrencies

• Bitcoin rose 0.6% to $63,673.18

• Ether fell 0.3% to $2,653.92

Bonds

• The yield on 10-year Treasuries advanced four basis points to 3.79%

• Germany’s 10-year yield advanced four basis points to 2.20%

• Britain’s 10-year yield advanced five basis points to 3.97%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Mark Cudmore, Winnie Hsu and Aya Wagatsuma.

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