European Stock Markets Rise as China Eases Restrictions, Dollar Slips Ahead of U.S. Inflation Data
London, August 10 – European stock markets saw gains on Thursday, driven by the luxury sector, after China eased some pandemic-era restrictions. Meanwhile, the dollar slipped as investors awaited U.S. inflation data that could impact the Federal Reserve’s policy decisions.
Economists surveyed by Reuters predict that U.S. consumer price inflation for July will rise slightly to an annual rate of 3.3%. The core rate, which excludes food and energy, is expected to increase by 0.2% in July, resulting in an annual gain of 4.8%.
Ben Laidler, global markets strategist at eToro, commented, “We’re going to see our first rise in headline inflation after 12 consecutive months of falling prices. It will be a test of the goldilocks narrative which has supported the rally, which is that inflation will come down and allow interest rates to fall.”
Market expectations currently indicate a more than 50% chance that the Federal Reserve will not raise interest rates further this year, as inflation moderates and the possibility of a soft landing increases.
The pan-European benchmark STOXX 600 rose 0.5%, with luxury stocks leading the gains after China lifted a ban on group tours to the United States and other key markets. LVMH, Europe’s largest company by market cap, saw a 2% increase.
France’s CAC 40, which has a significant weighting of luxury names, outperformed in Europe with a 0.9% rise. Germany’s DAX gained 0.5%, while Britain’s FTSE 100 remained relatively unchanged due to several large-cap companies going ex-dividend.
Wall Street futures were pointing higher, indicating a positive start for U.S. markets.
Asian stocks, on the other hand, remained near a two-week low, still affected by China’s slip into deflation and the U.S. ban on investments in sensitive technologies like computer chips. The MSCI’s broadest index of Asia-Pacific shares outside Japan was largely unchanged and is expected to record a second consecutive week of losses. The technology sub-index fell to its lowest level in over two months.
Chinese data released on Wednesday showed deflation at the consumer-price level and further declines in factory-gate prices in July, raising concerns about the post-pandemic recovery.
China is the first G20 economy to report a year-on-year decline in consumer prices since Japan’s last negative headline CPI reading in August 2021. Analysts suggest that this highlights the need for more fiscal support from Beijing to avoid the risk of a deflationary trap.
In currency markets, the dollar index, which measures the U.S. currency against six peers, eased by 0.4%. The Japanese yen weakened to a one-month low of 144.135 per dollar, approaching the psychologically important level of 145.
Meanwhile, the yield on 10-year Treasury notes dipped by 1 basis point to 4.0011% after a successful 10-year note auction. Market sentiment remains cautious due to the heavy bond supply expected in the coming quarter.
“We’ve got $1 trillion coming down the pipe over the next three months,” said Ben Laidler of eToro. “Any sign that markets are absorbing that well, which we got the first signs of yesterday, will be very well taken.”
Bond strategists surveyed by Reuters anticipate a decline in U.S. Treasury yields in the coming months, with the median forecast for the 10-year Treasury note yield at 3.60% in six months.
Oil prices, which had reached their highest level since November 2022 earlier in the day, were slightly lower. Recent extensions to output cuts by Saudi Arabia and Russia had supported the prices. U.S. crude was down 0.4% to $84.08 per barrel, while Brent was at $87.40, down 0.2% for the day.
European gas prices also drew attention as they surged by as much as 35% on Wednesday, reaching their highest level since June 15. The increase was prompted by concerns over possible strikes at Australian liquefied natural gas (LNG) facilities, which could impact cargoes moving to Asia. On Thursday, the front-month Dutch contract saw a decline of over 5% to 39.46 euros per megawatt hour, partially offsetting the previous day’s gains.
Reporting by Samuel Indyk and Ankur Banerjee; Editing by Edwina Gibbs, Sam Holmes, Susan Fenton, Alexandra Hudson
How did China’s easing of pandemic-era restrictions impact European stock markets, specifically in the luxury sector?
European stock markets experienced gains on Thursday, driven by the luxury sector, following China’s easing of pandemic-era restrictions. At the same time, the dollar slipped as investors awaited U.S. inflation data that could impact the Federal Reserve’s policy decisions.
Economists predict that U.S. consumer price inflation for July will slightly increase to an annual rate of 3.3%. The core rate, which excludes food and energy, is expected to rise by 0.2% in July, resulting in an annual gain of 4.8%.
Ben Laidler, global markets strategist at eToro, stated, “We’re going to see our first rise in headline inflation after 12 consecutive months of falling prices. It will be a test of the goldilocks narrative which has supported the rally, which is that inflation will come down and allow interest rates to fall.”
Currently, market expectations suggest a more than 50% chance that the Federal Reserve will not further increase interest rates this year, as inflation moderates and the possibility of a soft landing increases.
The pan-European benchmark STOXX 600 rose by 0.5%, with luxury stocks leading the gains following China’s lifting of a ban on group tours to the United States and other important markets. LVMH, Europe’s largest company by market cap, saw a 2% increase.
Meanwhile, France’s CAC 40, which has a significant weighting of luxury names, outperformed in Europe with a 0.9% rise. Germany’s DAX gained 0.5%, while Britain’s FTSE 100 remained relatively unchanged due to several large-cap companies going ex-dividend.
Wall Street futures indicated a positive start for U.S. markets.
On the other hand, Asian stocks remained near a two-week low, still impacted by China’s slip into deflation and the U.S. ban on investments in sensitive technologies such as computer chips. The MSCI’s broadest index of Asia-Pacific shares outside Japan remained largely unchanged and is expected to record a second consecutive week of losses. The technology sub-index fell to its lowest level in over two months.
Chinese data released on Wednesday showed deflation at the consumer-price level and further declines in factory-gate prices in July, raising concerns about the post-pandemic recovery.
China is the first G20 economy to report a year-on-year decline in consumer prices since Japan’s last negative reading in 2016.
