Shares rise after China stimulus; Europe outlook grows darker

[July 25, 2023]  By Amanda Cooper

LONDON (Reuters) -Global shares rose on Tuesday, lifted by a rally in Asia, where the yuan bounced after China pledged to step up support for its sputtering economy, while evidence of a slowdown in European growth dented the euro.

China's top leaders pledged late on Monday to step up help for the economy, which is struggling to sustain a post-COVID recovery and signalled there would be more to come for the property industry.

The MSCI All-World index rose 0.2%, boosted by gains in the Chinese stock market, where the mainland index rose 1.9% and Hong Kong stocks rose 3% thanks to a surge in property stocks that had been diving on debt repayment worries. [.HK][.SS]

But the positive momentum did not carry over into Europe, where stocks and the euro struggled to remain in positive territory, as concern about recession resurfaced after regional surveys the day before showed business activity shrunk far more than expected in July.

"There's a couple of things. Firstly, is that where European and U.S. traders are concerned, there are almost bigger fish to fry in this part of the world, with the Fed coming up tomorrow night and then the ECB on Thursday," Michael Brown, a market strategist with TraderX said.

"The second thing is this week, and certainly since Monday morning, we’ve seen a real big turnaround in the data coming out of Europe. The PMIs were, quite frankly, disastrous," he said.

Monday's Purchasing Manager Indexes came in below expectations for the euro zone as a whole, as well as in key economies such as France and Germany, prompting traders to rethink what the European Central Bank might signal in terms of the rate outlook when it meets on Thursday.

Tuesday's macro releases offered evidence of a deterioration of business confidence in Germany this month, and demand for loans in the euro zone hitting a record low in the second quarter, as rising interest rates took their toll, according to an ECB survey.

The Federal Reserve releases its decision on monetary policy on Wednesday.

Markets anticipate 25-basis-point rate hikes from both the Fed and the European Central Bank this week, but beyond that pricing diverges from policymakers' rhetoric, meaning a great deal of focus will fall on their tone and outlook.

Passersby walk past an electric board displaying Japan's Nikkei share average outside a brokerage in Tokyo, Japan April 18, 2023. REUTERS/Issei Kato

EUROPE MINERS CHEER CHINA

Europe's STOXX 600 edged up 0.2% on the day, led in part by shares in mining companies, which rallied after China's signal that it intends to prop up the economy..

Consumer group Unilever, which makes Dove soap and Ben & Jerry's ice cream, rallied 5% after beating underlying quarterly sales growth forecasts, which kept the FTSE 100 in positive territory.

In currencies, the Chinese yuan rose 0.7% against the dollar to 7.1386 after the stimulus measures, helped by state banks selling dollars onshore and offshore in Asia.

The dollar index, which measures the performance of the U.S. currency against six others, eased 0.1% to 101.34.

The Australian dollar, which serves as a liquid proxy to the yuan, rose 0.5% to $0.677, while the euro struggled to pull above two-week lows. It was last up 0.1% at $1.1076.

The Japanese yen edged higher against the dollar, which fell 0.2% to 141.27. Investors seem to be in two minds over whether the Bank of Japan, which meets on Friday, might alter its policy of keeping borrowing rates near zero.

In the U.S., Microsoft, Google parent Alphabet, Visa, General Electric, chipmaker Texas Instruments are among the heavyweights reporting in the coming day or two.

On Wall Street, the Dow Jones closed up for a 10th day on Monday, marking its longest stretch of daily gains since 2017. This year's tech-led rally finally appears to be broadening out across the market, and investors are upbeat about this week's earnings reports.

Morgan Stanley's Mike Wilson, probably the most prominent equity bear this year and whose call for a lower S&P 500 was based on poor earnings, said on Monday: "We were wrong".

In the energy market, both Brent and U.S. crude futures were flat on the day, at $82.71 a barrel and $78.74 a barrel, respectively.

(Additional reporting by Ankur Banerjee in Singapore; Editing by Shri Navaratnam and Christina Fincher)

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