Europe close: China stimulus boosts markets, Stoxx 600 nears record high

24th Sep 2024 15:26

(Sharecast News) - European stocks rose for the second straight day on Tuesday, as investors shrugged off yet more disappointing economic data from Germany and instead focused on an encouraging stimulus package from China's central bank.

The Stoxx 600 rose 0.7% to 519.7, inching closer towards the 525.05 record closing high registered on 30 August. Frankfurt's DAX in particular finished 0.8% higher at 18,996.63, just a whisker away from the 19,002.38 record close seen last week.

China's central bank unveiled a raft of cuts to reserve requirements and lending rates, including for existing home loans, as it tried to stimulate the country's stagnant economy.

The People's Bank of China said it would cut the amount of cash that banks must hold as reserves - known as reserve requirement ratios (RRR) - by 50 basis points. It will also cut a key policy rate by 0.2 percentage points to 1.5%, while interest rates on existing mortgages will also be reduced by 0.5 percentage points on average, said bank governor Pan Gongsheng.

"Chinese policymakers are attempting to stimulate development in the nation's faltering economy by introducing a plethora of stimulus measures, such as interest rate reduction and stock market revival initiatives," said Patrick Munnelly, partner of market strategy at Tickmill Group.

"Following the statement, global equities increased, allaying some fears regarding the potential effects of a downturn in the second-largest economy in the world."

The news from Germany went from bad to worse, with a closely watched business sentiment gauge deteriorating more than expected in September. The IFO's business climate index fell to 85.4 from 86.6 in August, versus expectations for a reading of 86.1, dropping for the fourth straight month.

In other news, comments from Bank of England governor Andrew Bailey were in focus as he predicted that interest rates will settle at a "neutral rate", with inflation having come down "a long way". "I do think the path for interest rates will be downwards, gradually," Bailey said.

Market movers

Mining stocks were performing well on the back of China's stimulus measures, with Anglo American, Antofagasta, Boliden and ArcelorMittal all gaining 5% or more to dominate the Stoxx 600 risers list.

Luxury stocks were also rising for the same reason, given the recent sharp slowdown in luxury spending among Chinese consumers. Richemont, Hermes, LVMH, Kering and Remy Cointreau were all in favour.

London-listed financials Prudential and Standard Chartered - both of which have exposure to China - were also in the black.

On the downside, engineering solutions business Smiths Group fell sharply as its full-year adjusted pre-tax profit missed estimates.