European stock markets reached a new high during mid-morning trading on Friday, spurred by momentum from a rally in Asia led by China. By 09:13 GMT, the pan-European Stoxx 600 had gained 0.3%, rising to 526.92 after previously hitting an intraday high of 526.51. In Germany, the DAX index was up by 0.6%, while France’s CAC 40 and the UK’s FTSE 100 both increased by 0.3%.
Reports surfaced indicating that more economic stimulus measures from China could be on the way. On Friday, China’s central bank cut interest rates and injected further liquidity into the domestic banking system. These efforts are part of a broader strategy by Beijing to boost the country’s faltering economy and achieve a growth target of approximately 5% for the year. This new round of measures is expected to be revealed before China’s week-long holiday starting on 1st October. The announcement followed an earlier stimulus package introduced this week.
Sources suggest that concerns over the state of China’s economy were discussed at a meeting of the Communist Party’s top officials. Reuters reported that Shanghai and Shenzhen are considering lifting key restrictions on home purchases in the coming weeks. Additionally, Chinese authorities may be planning a special sovereign bond issuance valued at about 2 trillion yuan, equivalent to $284.43 billion. Analysts at Capital Economics noted that this stimulus package could potentially boost China’s GDP by around 0.4% over the next year.
The prospect of increased stimulus in China has had a noticeable effect on global markets. Chinese stocks enjoyed their best week since 2008, and European luxury goods companies, which rely heavily on Chinese sales, experienced a boost. Prominent fashion brands such as LVMH, Kering, Hermes, Hugo Boss, and Burberry saw their shares rise. Automobile stocks also saw gains. Meanwhile, shares in Moncler received an extra lift after LVMH agreed to acquire up to a 22% stake in the investment vehicle that controls the Italian luxury outerwear brand.
In other economic news, inflation in France and Spain dropped more than expected in September. This has raised hopes that the European Central Bank may consider another interest rate reduction next month. France’s annual consumer price growth fell to 1.2% from 1.8% in August, coming in below economists’ predictions of 1.6%. In Spain, inflation also eased, dropping to 1.5% from 2.3%, slower than the forecasted 1.9%.
Looking ahead, investors are likely to focus on new data from the United States, which could provide insight into the health of the world’s largest economy as the Federal Reserve contemplates further interest rate cuts. Last week, the Fed lowered borrowing costs by a substantial 50 basis points. For August, personal spending is expected to show a 0.3% rise, down from 0.5% in July. The personal consumption expenditures (PCE) price index, a key measure of inflation used by the Fed, is anticipated to increase by 0.2% on a monthly basis, mirroring July’s figure. On a year-on-year basis, inflation is expected to slow to 2.3% from 2.5%.
European stock markets are being buoyed by developments in Asia, particularly the anticipated stimulus from China. The effects of these measures are resonating not only in China but also in European luxury markets and broader sectors. However, the spotlight is shifting towards upcoming US economic data, which could shape future Federal Reserve actions.
JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
