European stocks opened Tuesday on a strong note, driven by sweeping stimulus measures from China. The pan-European STOXX 600 index rose by 0.9%, reaching 520.88 points by mid-morning. France’s index outperformed its peers, jumping 1.5%, benefiting from its large concentration of luxury brands.
China’s top financial authorities implemented the most significant economic stimulus since the pandemic. They announced a cut in bank reserves by 50 basis points and lowered mortgage rates. These actions had a notable impact on the shares of luxury companies, which are heavily reliant on Chinese consumer demand. Luxury brands such as LVMH, Hermes, Kering, Dior, and Burberry saw their stocks rise between 4% and 5%.
Ben Laidler, head of equity strategy at Bradesco BBI, commented on the situation, emphasising the strong connection between Chinese consumer spending and European luxury sales. According to Laidler, investors are banking on the idea that China’s monetary stimulus will eventually boost the purchasing power of its consumers.
The mining sector also saw significant gains, with basic resources stocks climbing 4.5%, marking their best day in almost two years. This increase coincided with copper prices reaching a two-month high, bolstered by China’s actions and improved regional demand. In the UK, the FTSE 100 gained 0.6%, with metal mining stocks benefiting from the same Chinese stimulus measures.
Investor sentiment has also been influenced by potential rate cuts from the U.S. Federal Reserve. Market participants are currently divided on whether the Fed will cut rates by 50 or 25 basis points in November. Laidler noted that a more aggressive stance by the Fed could open the door for other central banks, such as the European Central Bank, to accelerate their own rate-cutting cycles. He pointed out that the Fed’s openness to a larger rate cut is creating positive momentum for European markets.
Another factor that market participants are closely watching is an upcoming speech by European Central Bank board member Elizabeth McCaul, who is expected to make comments later in the day.
Meanwhile, data from Germany revealed a drop in business morale for September, exceeding market expectations. However, despite this negative news, Germany’s DAX index still managed to edge up 0.8%. Germany, which houses several major luxury carmakers, saw its markets benefit from the broader positive sentiment.
On the individual stock front, UK engineering firm Smiths Group saw its shares fall by 8% after missing annual profit expectations.
The combination of Chinese stimulus measures, rising copper prices, and potential Fed rate cuts has provided European markets with a significant boost, particularly in the luxury and mining sectors. Investors remain hopeful that these developments will translate into sustained market gains across the region.
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