Global shares boosted by China’s stimulus pledge

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 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 plummeting on debt repayment concerns.

The positive momentum failed to to carry over into Europe, where stocks and the euro struggled to remain in positive territory, as concern about recession resurfaced after regional surveys a day earlier show business activity shrunk far more than expected in July.

“There’s a couple of things. First, is that where European and US traders are concerned, there are almost bigger fish to fry in this part of the world, with the Fed coming up tomorrow night [Wednesday] then the ECB [European Central Bank] on Thursday,” said Michael Brown, a market strategist with TraderX.

“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 [Purchasing Managers' Indices] were, quite frankly, disastrous,” he said.

Monday’s PMIs came in below expectations for the eurozone as a whole, as well as France and Germany, prompting traders to rethink what the ECB 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 eurozone 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 ECB this week, but beyond that pricing diverges from policymakers’ rhetoric, meaning a great deal of focus will fall on their tone and outlook.

Cheers for 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 yuan strengthened 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 US 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 yen also firmed against the dollar to ¥141.27/$. Investors seem to be in two minds on whether the Bank of Japan, which meets on Friday, might alter its policy of keeping borrowing rates near zero.

In the US, Microsoft, Google parent Alphabet ,Visa, GE and chipmaker Texas Instruments are among the heavyweights reporting in the coming day or two.

On Wall Street, the Dow Jones closed higher 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 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.”

Reuters