PBOC presents a series of assistance measures for equities and real estate.
Companies with China exposure benefit from stimulus programs.
European equities and US share futures rose as China announced a number of stimulus measures aimed at boosting economic development, increasing investor demand for riskier assets.
The Stoxx Europe 600 Index increased 0.7%, led by industries subject to China, such as miners, luxury goods manufacturers, and automakers. Brent crude passed $75 per barrel, while iron ore prices increased supporting the shares of Rio Tinto Plc and BHP Group Ltd. US equities futures indicated to gains at the Wall Street open, but Treasuries dropped.
China’s complete package of monetary stimulus on Tuesday boosted risk sentiment, including lower reserve requirements for banks and at least 800 billion yuan ($114 billion) in liquidity assistance for equities.
While the news from Beijing helped to reduce the gloom of Monday’s negative European economic statistics, Goldman Sachs Group Inc. strategists warned that the region’s downturn represents a major risk to equities.
“It takes time for the economic impact of China’s stimulus to feed through to support Europe,” Michael Sneyd, global head of FX strategy and cross-asset strategist at BNP Paribas, told Bloomberg TV. “That China stimulus news is probably not enough to remove the downside risks in the European economy just yet.”
German automakers rallied, with Mercedes-Benz Group AG, BMW AG, and Volkswagen AG all up more than 2%. At the same time, German manufacturers face “structural” difficulties in China’s electric car industry, and “it’s not entirely obvious they will profit if the Chinese economy increases.
In China, the policy blitz boosted the country’s stock index to its highest point since July 2020. This boosted the MSCI Inc. index of emerging-market shares by more than 1%.
The measures included lowering a key short-term interest rate and plans to reduce the amount of money banks must maintain in reserve to its lowest level since at least 2018, as well as other moves such as a package to support the country’s suffering real estate sector.
Oil prices rose on word of the support, as a significant Israeli raid on Hezbollah sites in Lebanon increased Middle Eastern tensions. Gold set a new high of $2,640.11 per ounce.
The moves announced by People’s Bank of China Governor Pan Gongsheng come after many Federal Reserve officials appeared to leave the door open for further big rate reduction in the United States on Monday.
Traders expect roughly three-quarters of a point of policy lowering by the end of the year, suggesting at least one more large rate decrease is on the way. Investors are now waiting for statistics on the Fed’s preferred pricing indicator and US consumer expenditure later this week for more information on the size of potential reduction.