Tuesday 20 March 2018

US, European shares rebound following China's 'Black Monday'

Traders talk in front of the German share price index DAX board at the stock exchange in Frankfurt, Germany
Traders talk in front of the German share price index DAX board at the stock exchange in Frankfurt, Germany

US stocks rebounded sharply as investors sought out bargains a day after Wall Street turned in its worst performance in four years.

Markets also got a shot of good news with China's second interest rate cut in two months, but analysts stopped short of declaring that the worst was over.

"What we need to see to calm investors is positive economic data points out of China and only when we see that will the rallies be sustainable," said Xavier Smith, investment director at Centre Asset Management.

"Right now, it's pretty meaningless," he said of the interest rate cut.

European shares were up 4pc as China cuts interest rates on bruising share sell-off

European shares rose more than 4pc, on track for their best one-day gain since late 2011, with a rate cut from China providing added juice to a recovery from a bruising 48-hour sell-off.

Battered mining and technology stocks were the big winners from China's move to support its stuttering economy and a plunging stock market that has sent shockwaves around the globe.

China's woes have led to fears of fresh deflationary pressures around the world and the European Central Bank is ready to take additional measures in in the event of a material change in the inflation outlook, the bank's vice-president Vitor Constancio said.

"The measures will certainly stabilise sentiment in the short term," said Philip Shaw, chief economist at Investec. "(But in the longer term) it's debatable whether the moves in monetary policy can stabilise equity markets."

The pan-European FTSEurofirst 300 index, which slumped 5.4 percent on Monday, was up 4.1 percent at 1120 GMT, as was the blue-chip Euro STOXX 50 index.

Miners Glencore and Anglo American were up by between 6 percent and 8 percent, while German chipmaker Infineon and telecoms equipment player Nokia rose 6.5 percent.

Swiss agricultural chemicals company Syngenta was up more than 9 percent after a source said that Monsanto had sweetened a takeover offer.

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

Chinese shares slumped again on Tuesday, while Japan's Nikkei fell nearly 4 percent.

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 Sachs' strategists cut their position on equities to 'neutral' from 'overweight' due to the impact 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. ($1 = 0.8642 euros)


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