While you were sleeping: Europe’s sigh of relief

Tuesday 8th September 2015

European equities moved higher amid relief that Chinese stocks losses were contained, fuelling optimism that a slowdown in global economic growth will be checked.

Europe’s Stoxx 600 Index finished the day with a 1.1 percent gain from the previous close.

The UK’s FTSE 100 Index added 0.5 percent, France’s CAC 40 Index rose 0.6 percent and Germany’s DAX Index climbed 0.7 percent.

China’s Shanghai Composite Index shed 2.5 percent, a welcome sign after the country’s stock markets were closed last Thursday and Friday for ceremonies to mark the end of World War II.

Before trading resumed on Monday, People’s Bank of China Governor Zhou Xiaochuan said the correction in the Chinese stock market was “mostly over”.

“We did have some reassurance from the Chinese authorities over the weekend that this could be more or less the end of the rout,” Jane Foley, a senior currency strategist at Rabobank International in London, told Bloomberg. “But clearly the market is still very fragile as we’re staring directly at the next Fed meeting.”

US Federal Reserve policy makers gather next week, and might decide to raise interest rates for the first time since 2006.

Last week European Central Bank President Mario Draghi’ signalled euro-zone policy makers were ready to offer additional stimulus if needed to help stoke growth and inflation.

A report showed German industrial production increased in July, climbing 0.7 percent, following a revised 0.9 percent decline in June. While the gain was welcome, its size was below expectations.

“Germany is actually running on all the engines that are possible apart from the external demand coming out of emerging markets,” David Milleker, chief economist at Union Investment Privatfonds, told Bloomberg. “It’s nice, it’s solid, but it’s not euphoric because we have that drag.”

US markets were closed on Monday for the Labour Day holiday.

Shares of Glencore soared 7 percent in London after the company announced plans to cut its debt. It plans to raise up to US$2.5 billion by selling shares. The mining group also said it would idle some mines, providing a positive bid to copper prices.

“Notwithstanding our strong liquidity, positive operational free cashflow generation, lack of debt covenants, modest near-term maturities and the recent affirmation of our credit ratings, recent stakeholder engagement in response to market speculation around the sustainability of our leverage, highlights the desire to strengthen and protect our balance sheet amid the current market uncertainty,” Ivan Glasenberg, Glencore CEO, said in a statement.

Oil fell, with Brent shedding 4 percent, after Russia rejected calls from OPEC to reduce supply. China’s stock market decline didn’t help.

"Oil is only taking its cues from China," SEB chief commodity analyst Bjarne Schieldrop told Reuters.

BusinessDesk.co.nz

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