The Stoxx 600 index in Europe and S&P 500 futures struggled to gain traction after volatile trading in China. This volatility reflects skepticism among some traders regarding Beijing’s latest initiatives to stimulate growth. Meanwhile, the euro dipped slightly as investors braced for an expected interest rate cut from the European Central Bank (ECB) on Thursday.
China’s Finance Minister Promises Support
At a weekend briefing, China’s Finance Minister, Lan Fo’an, committed to providing more support for the real estate sector. However, he did not announce a specific monetary stimulus figure. Investors are now focused on upcoming earnings reports from major U.S. banks, including Citigroup Inc., Goldman Sachs Group Inc., and Bank of America Corp., which are set to be released on Tuesday.
“Sentiment is cautiously optimistic, but investors are in a ‘seeing-is-believing’ mode, waiting for actual numbers and more details on consumption and property measures, which have been lacking,” said Xin-Yao Ng, an investment director at abrdn Asia Ltd.
ECB Interest Rate Cut Expected
In Europe, the ECB is expected to lead a global trend toward monetary easing by cutting interest rates—a move that policymakers had largely ruled out just a month ago. Concerns regarding French finances and ongoing challenges in Germany weighed on the euro, which struggled on Monday. French bond futures remained stable despite these concerns. According to a Bloomberg survey, Germany is experiencing a mild recession, with flat economic output projected for 2024.
“Recent softer economic data and quicker disinflation have directly influenced both ECB communication and market expectations, which now reflect a 95% probability of a 25-basis point cut this week,” noted Barclays Plc strategists, including Themistoklis Fiotakis, in a client report. “We believe risks to the European economy and interest rates are tilted to the downside, suggesting further euro weakness, especially against other currencies.”
U.S. Holiday Affects Treasury Trading
Trading in cash Treasuries is closed on Monday due to a U.S. holiday.
In China, the CSI 300 Index rose as much as 2.4% after fluctuating between gains and losses earlier in the day. However, it capped its worst weekly performance since late July on Friday. A Bloomberg Intelligence index of Chinese developers rose by over 3%. Many investors and analysts had anticipated that China would implement around 2 trillion yuan (approximately $283 billion) in fresh fiscal stimulus.
“There’s likely to be a consolidation and pullback,” said Wendy Liu, chief Asia and China equity strategist at JPMorgan Chase & Co., in an interview with Bloomberg TV. “Structurally, things look fine. However, the short-term outlook is less satisfying.”
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