ECONOMY

European stocks edge up on China stimulus hopes

Markets updates

European stock markets opened higher after signs that Chinese authorities were taking steps to boost the nation’s slowing economy.

The UK’s FTSE 100 added 04 per cent, as did Germany’s Xetra Dax. The regional Stoxx Europe 600 index edged up 0.6 per cent.

The Stoxx was also boosted by travel shares, as reports suggested the UK government would ease restrictions and quarantine rules in time for the school half-term break. British Airways owner IAG gained 4 per cent and package holiday provider Tui added 5 per cent.

The People’s Bank of China injected an extra $14bn of short-term funds into the country’s banking system on Friday, its most since February. Analysts viewed this as a move to ease lending conditions following a debt crisis at major homebuilder Evergrande.

China’s central bank in April told lenders to rein in credit supply to prevent asset bubbles, after the economy had swiftly roared back to life following the first wave of coronavirus.

The nation’s authorities are now grappling with a deceleration in industrial production, retail sales and the real estate market while outbreaks of the highly infectious Delta Covid-19 variant have curbed travel and pressured global supply chains.

“We think there is a bit more stimulus coming,” said Marco Willner, head of investment strategy at NN Investment Partners. “This year we have seen efforts to rebalance the Chinese economy and get leverage out of the real estate sector” he added, “but that was perhaps a bit too much and they are now moving in the other direction so next year can start on a positive foot.”

The CSI 300 index of mainland Chinese stocks gained 1 per cent. Hong Kong’s Hang Seng index added 0.5 per cent but remained on track for a 14 per cent quarterly loss.

On Friday, the Financial Times revealed unpublished inflation forecasts by the European Central Bank that suggested it was on course to raising interest rates in just over two years.

The yield on Germany’s 10-year Bund, a barometer for interest rate expectations in the eurozone, rose 0.02 percentage points to minus 0.293 per cent.

“The conclusion by the FT that a lift-off of interest rates could come already in 2023 is not consistent with our forward guidance,” the ECB said.

“However, if a path to such a number does appear in their forecasts soon it will impact ECB messaging going forward which will be important to markets,” Deutsche Bank strategist Jim Reid commented.

Elsewhere, US government bonds and major currencies drifted ahead of the Federal Reserve’s meeting next week, where it is expected to offer clues about when it will reduce its $120bn a month of crisis-era bond purchases.

The yield on the 10-year US Treasury note was flat at 1.331 per cent.

The euro ticked 0.1 per cent higher against the dollar to purchase $1.1780. Sterling was steady at $1.3798.

US retail sales were far stronger than economists had expected in August, data released on Thursday showed, boosting speculation that the Fed may take the first step towards unwinding its bond-buying programme this week.

Brent crude, the oil benchmark, fell 0.5 per cent to $75.30 a barrel.

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