Tue. Oct 19th, 2021

European equities updates

European equities were on track for a seventh consecutive month of gains as investors drew signs of an economic slowdown in China to focus on optimism about the US central bank persisting with its monetary stimulus in the pandemic era.

Europe’s European Stoxx 600 stock opened up 0.2 per cent, bringing its gains to almost 20 per cent since the end of January, while the London FTSE 100 traded flat but was heading for the best month since April.

Futures markets indicated that Wall Street’s S&P 500 and Nasdaq Composite would build on records reached in the previous session. The FTSE All World Index rose 0.2% after peaking on Monday.

In Asia, Hong Kong’s Hang Seng index rose 0.7%, although the CSI 300 benchmark of Chinese mainland shares lost 0.2% after a survey of purchasing managers showed that activity in the country’s service sector has declined sharply.

Shares rose in response to a address by Federal Reserve Governor Jay Powell at the central bankers’ Jackson Hole symposium last week, where he spoke on the dangers to reduce the Fed’s $ 120 billion monthly debt purchases too quickly. He also stressed that the decisions to reduce assets were completely separate from the debate on raising interest rates.

The mortgage buying program, which is intended to stimulate economic activity through Covid-19 and despite the fact that it continues accelerate labor market improvement, has lowered revenue returns on U.S. treasuries and other debt instruments and made riskier assets, such as equities, more attractive. Some analysts believe that stock market valuations are now too dependent on movements by the Fed, as opposed to corporate earnings or the outlook for economic growth.

Mobeen Tahir, co-research director of ETF provider WisdomTree, says: “The Fed is kicking the ball in the road because it is not only taking down monetary volatility, but even giving markets clear guidance on future policies.

“This creates the risk that monetary policy itself could become a cause of volatility in the market, with a slight faltering tone from the central bank that could cause shocks.”

In China, the government’s purchasing manager index for the manufacturing sector posted a reading of 50.1 for August, lower than the previous month and just above the 50 watermark separating expansion from contraction. However, the PMI for the country’s non-manufacturing sectors fell to 47.5, from 53.3 in July, which economists at Nomura attributed to the government’s “draconian measures” to control the spread of the Delta coronavirus variant , as travel restrictions.

Chinese listed technology shares fell 1.5 percent on Tuesday after the government rule children should not play online games for more than three hours a week.

Elsewhere in the market, the yield on the standard 10-year US government bond, which is reversing its price, was 1.277 percent. Yields have dropped about 1.35 percent since the day before Powell’s speech in Jackson Hole. Germany’s 10-year yield on the Bund was also unchanged at minus 0.435 percent ahead information on inflation in the eurozone later on Tuesday.

Brent crude oil, the global oil standard, was 0.5 percent lower at $ 73.07 a barrel, suppressed by weak economic data from China. The dollar index, which measures the setback against major currencies, fell 0.2 percent. The euro added 0.2 percent against the dollar to $ 1.1824, while the pound increased 0.3 percent to $ 1.3972.

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