European stock gains may falter on geopolitical and economic fears after getting a boost from China's stimulus plans and slowing inflation.
The euro zone Stoxx 600 gained 2.69% in the week ended September 27 to a record high, extending its year-to-date rise to 10.1%. Germany's DAX40 closed the week at a record high, gaining 4% after rising 1.22% on Friday.
Fountain: TradingEconomy
Slow economic growth, natural gas price volatility and inflation have hurt European economic sentiment. GDP is projected to end 2024 in 0.8%.
Geopolitical developments, including the war in Ukraine and the upcoming US elections, have dampened optimism about European stocks. European policymakers have expressed concerns about issues such as climate change, security and trade if Trump wins a second term.
Fears about wider war in Middle East increased after Israel delicate Hezbollah leader Hassan Nasrallah in airstrikes Friday in Beirut.
The EU “is extremely concerned” about the confrontation between Israel and Hezbollah,” said Josep Borrell, EU High Representative for Foreign Affairs and Security Policy. saying.
“Any further escalation would have dramatic consequences for the region and beyond.”
European investors welcome China's 'stimulus blitz'
Despite current headwinds, investors welcomed the People's Bank of China (PBOC)”stimulus blitz” to address the country's economic obstacles.
China announced “a series of bold measures aimed at stabilizing both the economy and the stock market,” said Charu Chanana, head of foreign exchange strategy at Saxo. wrote September 25.
He Package Included a 50 basis point cut to banks' required reserve ratios (RRR) and a 20 basis point cut to the seven-day reverse repo rate.
The People's Bank of China announced liquidity support of 500 billion yuan ($71.3 billion) for share buybacks.
European fashion and auto stocks post biggest gains
Although European stocks rose immediately following the People's Bank of China news, fashion and auto stocks rose the most.
LVMH of France LVMHF jumped 19.2% and Hermes HESAY rose 16.5% during the week.
German automakers also posted gains. volkswagen VWAG increased by 7%, Mercedes-Benz Group MBGAF for 6.55 and BMW BMWAA by 6.6%.
Germany's automobile index rose 8.70% during the week.
Fountain: Börse-Frankfurt
European companies operating in China is worried that the slowdown of the world's second largest economy may affect profitability.
The Chinese economy grew 4.7% in the second quarter from April to June. This is the slowest pace since the first quarter of 2023 and below forecasts of 5% to 5.3%.
Fountain: Statesman
The stimulus package “may help repair some of the levels of confidence in the economy and policymakers,” Chanana wrote.
European equities helped by inflation data
European stocks received an additional boost this week thanks to inflation data.
Preliminary German data showed inflation slowed to 1.6% in September, compared with 1.9% in August, according to the country's Federal Statistics Office. saying on Mondays. France and Spain reported on September 27 that inflation slowed below 2%exceeding analysts' expectations.
Investors now give the European Central Bank (ECB) a 70% chance of cutting rates next month.
Fountain: Commercial economy
Although the latest economic data has boosted confidence, some investors have expressed caution.
The data “looks pretty shaky,” said Anwiti Bahuguna, chief investment officer of global allocation at Northern Trust Asset Management. BloombergTV.
“Inflation is coming down, but not fast enough to think there will be very marked relief on the rates front.”
European consumer sentiment improves
Despite these concerns, European consumer confidence has begun to improve. It increased by 0.5 points in the euro area in September to -12.9, in line with preliminary estimates.
“Consumers were noticeably more optimistic about the expected financial situation of their households,” says the European Commission saying on September 27.
In GermanyIn France, France and Italy, Europe's three largest economies, consumer confidence rose moderately, according to monthly surveys.
However, the Nuremberg Institute for Market Decisions (NIM) warned on September 26 that it was too early to conclude that German consumer confidence had improved.
The improvement in Germany “can rather be interpreted as a stabilization at a low level,” says NIM expert Rolf Bürkl.
“The slight increase cannot be interpreted as the beginning of a notable recovery.”
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