Beleaguered Chinese stocks surge on rescue efforts, Europe tags along

[February 06, 2024]  By Rae Wee

SINGAPORE (Reuters) -World share indexes rose on Tuesday, boosted by a sharp rise in Chinese stocks as Beijing ramped up efforts to put a floor under its slumping market, while government bond yields in Europe and the U.S. dipped slightly, after two days of large increases.

A slew of announcements from China's securities regulator, a reported meeting between President Xi Jinping and financial regulators, and Chinese state fund Central Huijin Investment saying it has expanded its scope of investment in exchange-trade funds, on Tuesday, highlighted the urgency with which Chinese authorities are trying to stem heavy losses in its stock market.

China's blue-chip index plunged to a five-year low last week on the back of the country's ailing economy, which had prompted state-backed investors, dubbed the "national team", to step up their buying of blue-chip stock tracking index funds to support the market. [.SS]

The CSI300 jumped 3.5%% in the wake of Tuesday's developments, its biggest one-day percentage gain since 2022, while Hong Kong's Hang Seng Index rose 4%, its most in a day in six months.

"The signals from authorities are very clear, they want to prevent the markets from falling further," said Ryota Abe, an economist at SMBC.

"These kind of measures were needed to support the investors’ sentiment, so the initial reactions were all positive. However, ... as long as markets have fundamental concerns on the real economy, the slew of announcements will remain effective only in the short term."
 

The gains in China also helped European shares higher, with the broad STOXX 600 benchmark up 0.26% holding near last week's two-year high.

Britain's FTSE 100 outperformed, rising 0.7% boosted by a 6% jump in oil major BP after it reported fourth-quarter profit of $3 billion, above expectations, and gains from China-exposed names like HSBC and Prudential.

UBS shares fell 2.8%, however, after it reported higher expenses with its quarterly results, though said it would restart share buybacks and that its integration of fallen rival Credit Suisse was on track.

Nasdaq futures rose 0.3%, while S&P 500 futures edged 0.1% higher.

HAWKISH TONE

In currencies, the Australian dollar jumped as much as 0.6% after the country's central bank retained a tightening bias at the conclusion of a policy meeting and warned against imminent rate cuts, pushing market timing of a first easing to later in the year.

An investor watches an electronic board showing stock information at a brokerage office in Beijing, China, July 9, 2015. REUTERS/Kim Kyung-Hoon

Elsewhere, the dollar hovered near a three-month high against its major peers and last bought 148.39 yen, , and sat at $1,0745 per euro, with the greenback buoyed by the prospect of higher-for-longer U.S. policy rates. [FRX/]

Fed expectations remain the main driver of market moves at present.

Data on Monday showed the U.S. services sector growth picked up in January as new orders increased and employment rebounded, adding to growing doubts about the slew of Fed rate cuts priced in for this year, which had already been dialled back in the wake of Friday's blockbuster U.S. jobs report.

Benchmark 10 year U.S. Treasury yields rose around 30 basis points across Friday and Monday, their biggest two-day gain in 18 months, though were down a couple of basis points at 4.150% on Tuesday.

Market pricing shows roughly 115 basis points of easing by the Fed this year, down from over 150 bps at the end of last year.

Bets for a March rate cut have also largely been priced out, and investors are becoming less certain even about a cut by May.

Benchmark German yields dipped a touch too, to 2.31%, also after two days of increases.

"What does worry us... is whether the ongoing strength of the U.S. job market in January means that the U.S. consumer will stay strong, thereby undoing the disinflationary trend, and extending tight monetary policy more indefinitely," said Thierry Wizman, global FX and rates strategist at Macquarie.

In commodities, oil prices held largely steady as traders took stock of a visit to the Middle East by U.S. Secretary of State Antony Blinken to discuss a ceasefire offer in the region.

U.S. crude shed 16 cents to $72.62 a barrel. Brent lost 11 cents to $77.88 [O/R]

Gold was flat at $2,024.1 an ounce. [GOL/]

(Reporting by Rae Wee, additional reporting by Alun John in LondonEditing by Shri Navaratnam, Sam Holmes and Sharon Singleton)

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