European stocks hit three-week high on China optimism
European stock markets are rising at the start of the week, lifted by optimism that China is taking steps to support its property sector, and the wider economy.
In London, the FTSE 100 index of blue-chip shares has gained 45 points, or 0.6%, to 7510 – its highest level since 14 August. Mining companies, which benefit from Chinese demand for commodities, are among the top risers.
Germany’s DAX is up 0.5%, while France’s CAC has gained 0.6%, lifting the pan-European Stoxx 600 to its highest in over three weeks.
That follows gains in Asia-Pacific markets, where China’s CSI 300 index has gained 1.5% and Japan’s Nikkei rose 0.7%.
The rally comes as China’s central government today approved setting up a special bureau to promote the development and growth of the private economy.
Reuters says the bureau will be responsible for devising policies to promote the development of private companies, both domestically and in terms of their international competitiveness, and provide a trouble-shooting function, according to Cong Liang, the state planner’s vice chairman.
That follows last Friday’s stimulus measures to boost China’s ailing property market and support a weakening yuan.
In another boost, Chinese property developer Country Garden has agreed a deal with its creditors to extend onshore debt payments worth 3.9 billion yuan (£425m). That should help stabilise the company, after it reported a record loss of 48.9 billion yuan for the first half of the year last week.
Shares in Country Garden jumped as much as 19% to their highest level since August 10th.
Richard Hunter, head of markets at interactive investor, says Beijing’s efforts are lifting investor spirits:
China’s property sector has been in the eye of the recent economic storm, but investors are coming to the conclusion that the cumulative effects of recent moves by the authorities may actually begin to move the dial. Further relaxation of home buying restrictions is expected to follow imminently, which would add to recent moves such as the reduction of downpayments for first-time buyers and the lowering of rates on existing mortgages.
News from Country Garden that it had secured approval to extend payments for an onshore bond was also of some comfort, while there were also reports that there had been a rise in real estate transactions following Beijing’s moves last week. The next test of this renewed optimism will come later in the week as China reports its trade balance, imports and exports position on Thursday.
The generally optimistic momentum carried over to the UK in opening exchanges, with the main indices posting solid gains. The FTSE100 was buoyed by the more recent China news, with mining stocks attracting some risk-on buying interest and with the likes of Prudential and HSBC also ticking higher given their Chinese exposure. It remains to be seen whether this risk appetite is sustained, but if the news from the two global economic superpowers continues to trend in the right direction, the premier index is likely to receive a knock-on benefit given the importance of overseas earnings to many of its constituents.
Key events
Home sales in two of China’s biggest cities have soared over the last few days after mortgage rules were relaxed, Bloomberg reports.
It’s an early sign that government efforts to cushion a record housing slowdown is helping.
Existing-home sales for Beijing and Shanghai doubled over the weekend from the previous one, according to CGS-CIMB Securities.
Raymond Cheng, head of China property at CIMB, says:
“We were surprised by the strong pick up in Beijing and Shanghai, despite the challenging economy.”
Home sales in two of China’s biggest cities soared in the past two days following mortgage relaxations, an early sign that government efforts to cushion a record housing slowdown is helping https://t.co/U5KWmmDTW5
— Bloomberg (@business) September 4, 2023
Eurozone investor mood darkens
Back in the eurozone, investor morale has fallen by more than expected as Germany’s economic weakness remained a major drag on the region
Sentix’s index for the euro zone declined to -21.5 points in September from -18.9 in August, weaker than the -20.0 estimated by analysts polled by Reuters.
Sentix managing director Manfred Huebner says:
The situation in Germany remains particularly precarious. Here we are measuring the weakest situation … since July 2020, when the economy was slowed by the first coronavirus lockdown.
Germany is also weighing heavily on the economy in the eurozone as a whole … The tipping point of a global recession is less distant than one might think.”
A measure of the current economic situation fell to -22, the lowest since last November, while the sub-index for future expectations in the euro zone dropped to -21.0 points, from -17.3 in the previous month.
Huebner added that the “complete lack of economic competence in the political leadership and the enormous uncertainties for the economy caused by the energy and electricity crisis are dragging the German economy deeper and deeper into recession”.
Sentix: Germany is once again “the weak man of Europe”. The complete lack of economic competence in the political leadership and the enormous uncertainties for the economy caused by the energy and electricity crisis are dragging the German economy deeper and deeper into recession pic.twitter.com/iUGrR1iUIP
— Petar Momchev (@momchev12) September 4, 2023
Last Friday’s US jobs report, showing a surprise rise in unemployment to 3.8%, is also helping markets today, as it could prevent another rise in US interest rates.
Russ Mould, investment director at AJ Bell, explains:
“Investors are growing warm to the idea that the Federal Reserve might not rush to raise interest rates again at its next meeting. An increase in unemployment for August and lower than expected wage growth suggest the Fed may sit on its hands and make no change to rates,” says
“Judging by the messages from US corporates regarding a slowdown in trading, it does feel like we could be at a turning point for monetary policy. Nonetheless, it is impossible to say for certain what the Fed will do, given these are only data points from a brief period of time.
He adds:
“Sentiment across Asian markets improved after the weekend vote by creditors in favour of restructuring a bond repayment by troubled Chinese property developer Country Garden. Chinese authorities also lowered downpayment requirements for first and second-time home buyers, thereby providing yet another stimulus initiative to drive greater economic growth.
European stocks hit three-week high on China optimism
European stock markets are rising at the start of the week, lifted by optimism that China is taking steps to support its property sector, and the wider economy.
In London, the FTSE 100 index of blue-chip shares has gained 45 points, or 0.6%, to 7510 – its highest level since 14 August. Mining companies, which benefit from Chinese demand for commodities, are among the top risers.
Germany’s DAX is up 0.5%, while France’s CAC has gained 0.6%, lifting the pan-European Stoxx 600 to its highest in over three weeks.
That follows gains in Asia-Pacific markets, where China’s CSI 300 index has gained 1.5% and Japan’s Nikkei rose 0.7%.
The rally comes as China’s central government today approved setting up a special bureau to promote the development and growth of the private economy.
Reuters says the bureau will be responsible for devising policies to promote the development of private companies, both domestically and in terms of their international competitiveness, and provide a trouble-shooting function, according to Cong Liang, the state planner’s vice chairman.
That follows last Friday’s stimulus measures to boost China’s ailing property market and support a weakening yuan.
In another boost, Chinese property developer Country Garden has agreed a deal with its creditors to extend onshore debt payments worth 3.9 billion yuan (£425m). That should help stabilise the company, after it reported a record loss of 48.9 billion yuan for the first half of the year last week.
Shares in Country Garden jumped as much as 19% to their highest level since August 10th.
Richard Hunter, head of markets at interactive investor, says Beijing’s efforts are lifting investor spirits:
China’s property sector has been in the eye of the recent economic storm, but investors are coming to the conclusion that the cumulative effects of recent moves by the authorities may actually begin to move the dial. Further relaxation of home buying restrictions is expected to follow imminently, which would add to recent moves such as the reduction of downpayments for first-time buyers and the lowering of rates on existing mortgages.
News from Country Garden that it had secured approval to extend payments for an onshore bond was also of some comfort, while there were also reports that there had been a rise in real estate transactions following Beijing’s moves last week. The next test of this renewed optimism will come later in the week as China reports its trade balance, imports and exports position on Thursday.
The generally optimistic momentum carried over to the UK in opening exchanges, with the main indices posting solid gains. The FTSE100 was buoyed by the more recent China news, with mining stocks attracting some risk-on buying interest and with the likes of Prudential and HSBC also ticking higher given their Chinese exposure. It remains to be seen whether this risk appetite is sustained, but if the news from the two global economic superpowers continues to trend in the right direction, the premier index is likely to receive a knock-on benefit given the importance of overseas earnings to many of its constituents.
Insolvencies and (lack of) liquidity point to an economic downturn, warns Professor Costas Milas, of the Management School at University of Liverpool.
He tells us:
The rise in insolvencies is indicative of a wider downturn in the UK economy not least because liquidity, proxied by money growth in the economy, is also dropping fast. In fact, Divisia money growth has just recorded a huge drop to a historical low of -7.2% per annum in July 2023.
This is quite a worry because money growth is a very reliable predictor of future UK growth.
The data suggests significant downward pressure on GDP growth. Assuming away negative news on inflation, the latest data suggests no further interest rate rises this month. The Bank of England’s interest-rate setters should take notice…
Switzerland’s economy stagnated in the last quarter, hit by a slump in manufacturing output.
Swiss GDP was unchanged quarter-on-quarter in Q2, missing expectations of a small rise of 0.1%, official data shows.
Switzerland’s manufacturing sector shrank by 2.9%, due to a “marked decline” in the chemical and pharmaceutical industry.
Swiss GDP (Q/Q) Q2: 0.0% (exp 0.1%; prev 0.3%)
– Swiss GDP (Y/Y) Q2: 0.5% (exp 0.5%; prevR 1.5%)— LiveSquawk (@LiveSquawk) September 4, 2023
German exports fall in July
Germany’s economy continues to suffer from weak trade, hurting its efforts to return to growth.
German exports fell by 0.9% month-on-month in July, new official data shows, as its manufacturers suffered from weak global demand.
Imports rose by 1.4%, leaving Germany with a trade balance of €15.9bn.
ING say the figures are a disappointment, adding:
Disappointing export and retail sales data shows that the German economy started the third quarter on a weak footing. The risk of falling back into contraction remains high.
As well as pushing businesses to the wall, higher interest rates are also driving house prices lower.
The National Institute of Economic and Social Research (Niesr) has reported that August’s 5.3% drop in house prices mean that 50,000 people had fallen into negative equity over the last 12 months, meaning their home is worth less than their mortgage, the Daily Telegraph reports.
Max Mosley, an economist at Niesr, warns:
“Mortgage holders across the country have had to endure Covid, a cost-of-living crisis and now a cost-of-owning crisis.”
Ryanair: 63,000 passengers hit by ATC failure
Budget airline Ryanair has revealed that over 60,000 of its customers saw their flights cancelled during last week’s air traffic control chaos.
Ryanair reports this morning that more than 350 flights were cancelled on August 28 and 29 – Monday and Tuesday last week – due to the air traffic control (ATC) failure, impacting 63,000 of its passengers.
The Irish carrier said the ATC failure – which caused widespread travel disruption last week and left passengers stranded – “has still not been explained”.
Ryanair carried 18.9 million guests in total last month, up 11% on a year earlier, it added – a new monthly record.
August was BUSIEST month In #Ryanair history
18.9m passengers
up 26.8pc on 2019 and up 11.8pc on 2022
Ryanair operated 103k flights
350 flights (63,000 pax) cancelled 28-29 due to English ATC failure
Load factor 96pc, 23rd time that record figure has been achieved in a month pic.twitter.com/soiK1RA18j— Eoghan Corry (@eoghancorry) September 4, 2023
The automatic flight planning system used by Nats, the company that provides national air traffic control services in the UK, was out of action for several hours on Monday.
Airspace was not closed, but the number of planes in the sky was severely restricted while the automated system was down.
Last week, Ryanair’s CEO Michael O’Leary blasted air traffic services for its lack of communication over the outage.
Nats says that the failure was triggered by a single piece of data in a flight plan that was wrongly input to its system by an unnamed airline. Willie Walsh, the director general of the global airlines body, Iata, said it was “staggering” that inputting a single flight plan incorrectly could knock the whole system over
Introduction: Interest rate rises to drive up business insolvencies
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Around 28,000 UK businesses are expected to fold next year, as high borrowing costs put an unbearable strain on companies.
Economics consultancy the CEBR is predicting that Britain is likely to witness 7,000 business insolvencies per quarter in 2024, as the economic drops into recession.
In a new report, CEBR warns that rising interest rates and weaker demand from the cost-of-living crisis will lead to more business failures, with debt repayments hitting unsustainable levels for some businesses.
This rise in insolvencies may be indicative of a wider downturn in the economy, CEBR warns, adding:
If large investments in projects are being delayed, likely due to high borrowing costs, and businesses are collapsing, there will be impacts felt throughout the economy, from suppliers of materials to workers losing their jobs.
Firms have already gone to the wall since the Bank of England began its cycle of rising interest rates. There were 6,700 business insolvencies in Britain in the April-June quarter this year – 50% higher than before the pandemic.
Business insolvencies jumped 30% to a 13-year high of 22,000 in 2022 as government support programmes that offered companies protection from their creditors during the pandemic came to an end.
CEBR forecasts a recession in the UK, with two consecutive quarters of contraction in GDP in Q4 2023 and Q1 2024, taking the shine off last Friday’s welcome news that the economy has been stronger than thought since the pandemic.
More here:
CEBR also predict that UK interest rates will peak at 5.75%, up from 5.25% at present, adding to the pressure on borrowers.
Yesterday, chancellor Jeremy Hunt warned that inflation may increase this month, in a “blip”, as new data shows petrol and diesel prices rose last month.
The agenda
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7am BST: German trade balance for July
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8am BST: Switzerland’s Q2 2023 GDP report
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2pm BST: Bank of Israel sets interest rates
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2.30pm BST: ECB’s Christine Lagarde speech at European Economics & Financial Centre
