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European stocks declined on Monday as weak data raised concerns about the state of China’s economy. Traders were also waiting for corporate earnings to assess the impact of global interest rate hikes.
The region-wide Stoxx 600 in Europe fell 0.6%, extending losses from the previous session. Additionally, France’s Cac 40 dropped 1.2% and Germany’s Dax decreased by 0.5%.
The decline in luxury goods stocks contributed to the overall decrease, following concerning data from China indicating that the second-largest economy is struggling to recover from the impact of three years of severe Covid-19 restrictions. Richemont, a Swiss company, experienced the largest decline, falling 9%.
Official data released on Monday showed that China’s GDP grew by 0.8% in the three months leading up to July, down from 2.2% in the previous quarter. This decline was attributed to falling exports, weak retail sales, and a stagnant property sector.
Duncan Wrigley, Chief China Economist at Pantheon Macroeconomics, stated that China’s post-pandemic revival is losing momentum due to decreased global demand and the fading release of pent-up demand built during the zero-Covid policy era.
The disappointing data also had an impact on oil prices. The international benchmark, Brent crude, fell 1.3% to $78.88 per barrel, while US marker West Texas Intermediate experienced the same decline, trading at $74.46. China is the world’s second-largest oil consumer, after the US.
All eyes are now on the upcoming meeting of China’s ruling politburo, where policymakers are expected to discuss potential measures to further support the economy.
Mohit Kumar, Chief Europe Financial Economist at Jefferies, commented, “Today’s data increases the likelihood of more stimulus measures from China in the coming weeks. Lowered market expectations regarding China’s growth story may result in positive surprises from stimulus measures, providing short-term support to equity markets.”
On Monday, China’s benchmark CSI 300 index declined by 0.8%, while Hong Kong’s stock exchange suspended trading due to a weather warning. Japanese markets were closed for a holiday.
In addition, traders are anticipating the release of the Federal Reserve Bank of New York’s Empire State Manufacturing Survey later in the day. The index is expected to show a decline from 6.6 to minus 4.3 in July, indicating an overall contraction in factory activity following the prolonged period of rising US interest rates.
In the US, futures were subdued, with contracts tracking the S&P 500 losing 0.1%, while those tracking the tech-heavy Nasdaq 100 remained flat ahead of the New York market opening.
As the earnings season continues, traders are focusing on tech companies this week, with electric-car maker Tesla being the first of the sector’s giants to report its results on Wednesday.
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