Business World

Monday 18 June 2018

European shares end up 4pc after China cuts rates

A risk manager works on the trading floor at IG Index in London today. Photo: REUTERS/Suzanne Plunkett
A risk manager works on the trading floor at IG Index in London today. Photo: REUTERS/Suzanne Plunkett

By Sudip Kar-Gupta

EUROPEAN shares rose more than 4pc today, their best one-day gain since late 2011, as a rate cut in China fuelled a recovery from a bruising 48-hour sell-off.

Battered mining and technology stocks were among the big winners when China moved to support its stuttering economy and a plunging stock market that had sent shockwaves around the globe.

China's woes have led to fears of fresh deflationary pressures around the world. The European Central Bank is ready to take further measures if the inflation outlook changes materially, ECB Vice President Vitor Constancio said.

"We think the corner in markets has been turned," Bank of America-Merrill Lynch strategists wrote in a note to clients. "We would acknowledge, though, that this sell-off has done some serious damage to markets and any recovery is likely to take time and be volatile."

Read more: US, European shares rebound following China's 'Black Monday'

The pan-European FTSEurofirst 300 index, which slumped 5.4 percent on Monday, closed up 4.2 percent. The blue-chip Euro STOXX 50 index rose 4.7 percent.

German chipmaker Infineon rose 10 percent while miner Antofagasta gained 8.7 percent.

Swiss agricultural chemicals company Syngenta was up 5.9 percent after a source said that Monsanto had sweetened a takeover offer.

World financial markets have been rattled by a sell-off in the Chinese stock market after the devaluation of the yuan this month.

Some investors took heart from a rise in the German IFO business climate index for August and said that domestic demand across Europe was showing broadly positive signs.

"There are solid reasons to be worried about the global growth outlook, given emerging markets and systemic fears in China," said Valentijn van Nieuwenhuijzen, head of multi-asset strategy at NN Investment Partners. "However, it is a risk - not yet a reality - that this will spread to the developed world. The IFO number this morning ... shows domestic demand is holding up quite well so far."

GOLDMAN CUTS EQUITIES POSITION

Goldman Sachs' strategists cut their position on equities to 'neutral' from 'overweight' because of the drop in China, though they did not expect the sell-off to cause a global recession, citing signs of economic growth in the United States and Europe.

"In the meantime, we recognise the shift in sentiment that is being reflected in recent price action both in equities and, via falling inflation expectations, in bonds," they wrote in a note.

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