Market Analysis

Following China's stimulus, European equities jump, but economic fears persist

Amos Simanungkalit · 24 Sep9K Views

European stock markets rose on Tuesday, buoyed by additional stimulus measures from China, a key export market. However, gains were limited by ongoing concerns about the region’s economic outlook.

By 03:05 ET (07:05 GMT), Germany’s DAX index was up 0.9%, France’s CAC 40 rose 1.4%, and the U.K.'s FTSE 100 increased by 0.6%.

Chinese Stimulus Lifts Sentiment European equities received a largely positive lead from Asia after Chinese authorities announced a series of measures to stimulate economic growth. The People’s Bank of China is set to cut bank reserve requirements by 50 basis points, injecting more liquidity into the economy.

These actions followed the central bank’s decision on Monday to reduce the short-term repo rate, further enhancing liquidity. These steps aim to support economic growth as China grapples with disinflation and a prolonged property market downturn.

China is a significant export market for many major European companies, which have faced challenges due to reduced demand as Chinese consumers tighten spending.

Eurozone Growth Concerns Persist Despite the optimism from Chinese stimulus, concerns over the eurozone’s growth outlook linger. Data released Monday revealed a sharper-than-expected contraction in regional business activity this month, with manufacturing declining across the bloc.

This downturn appeared widespread, with Germany, Europe’s largest economy, seeing its decline worsen, while France, the second-largest economy, slipped back into contraction.

Later in the day, the German Ifo business climate index is expected, and forecasts suggest a decline in business sentiment.

Earlier this month, the European Central Bank lowered its key interest rates by 25 basis points, following a similar move in June. The ongoing economic slowdown may prompt further policy easing in October.

Focus on Commerzbank In the corporate sector, attention is on Commerzbank (ETR) after news emerged that UniCredit SpA (ETR) has been using derivatives to more than double its potential stake in the German bank, before gaining regulatory approval to hold more than 9.9%.

German Chancellor Olaf Scholz condemned the move as "an unfriendly attack," while the German state still holds a 12% stake in Commerzbank. UniCredit is seeking European Central Bank approval to increase its stake to just under 30%, the threshold for triggering a mandatory takeover under German law.

Oil Prices Boosted by Chinese Stimulus Crude oil prices rose significantly on Tuesday, driven by fresh Chinese monetary stimulus and rising tensions in the Middle East.

By 03:05 ET, Brent crude was up 1.1%, trading at $74.03 per barrel, while U.S. crude futures (WTI) climbed 1.3% to $71.25 per barrel.

China’s central bank’s broad monetary stimulus has fueled hopes of increased demand for crude from the world’s largest importer, as economic activity picks up.

Additionally, escalating tensions in the Middle East, following Israeli airstrikes on Hezbollah sites in Lebanon, have raised concerns about potential disruptions to oil supplies from the region, further tightening global markets.