European markets climb as China unveils economic stimulus package

Major European benchmarks opened higher on Tuesday morning, following the People’s Bank of China’s (PBOC) announcement of additional easing measures aimed at achieving its 5% annual growth target.

Euro Stoxx 50 futures were up 1.14%, FTSE 100 futures rose 0.52%, and DAX futures advanced 0.73%.

China unveils the biggest package to boost its economy

Following the Federal Reserve’s jumbo rate cut last week, the People’s Bank of China (PBOC) announced a 0.5% cut to the Reserve Requirement Ratio (RRR), which represents the percentage of deposits banks are required to hold in reserves with the central bank.

This rare move was accompanied by a 0.2% reduction in the seven-day repo rate. In addition, the PBOC unveiled a historic $5.3tn (€4.8tn) package aimed at reducing mortgage rates and downpayment requirements for second-home buyers.

Furthermore, Governor Pan Gongsheng announced a 500 billion yuan (€64bn) liquidity injection to support stock markets, allowing securities and insurance firms to invest in equities through central bank borrowings.

In response, stock markets across Asia surged, with the Hang Seng Index jumping over 3% and mainland Chinese markets rising by more than 2%.

The MSCI Asia Pacific Index gained 0.7%. However, Australia’s ASX 200 saw a slight decline after the Reserve Bank of Australia (RBA) held its cash rate steady and maintained a hawkish outlook.

European mining stocks likely to rally

The PBOC’s expansive stimulus measures to support its property market have also boosted growth-sensitive commodity prices.

Copper futures surged 2.1% to $4.44 per pound, the highest level since July. Precious metals also saw a sharp rise, with spot gold prices hitting a new high above $2,635 per ounce, while gold futures increased by over $10 to reach $2,663 per ounce.

Silver futures climbed 1.22% to $31.47 per ounce at 8am CEST.

Energy commodities such as crude oil and natural gas also followed suit, benefiting from the broad-based commodity rally. Iron ore futures (SGX TSI Iron Ore 62%) jumped 1.1% to $92.40 per metric tonne.

The rise in metal prices is likely to bolster European mining and energy stocks, providing a boost to the industrial and materials sectors.

China’s efforts to stabilise its beleaguered property market are expected to increase demand for industrial metals and critical minerals, which are key outputs for major mining companies such as Rio Tinto, Glencore, Anglo American, and BHP.

The mining sector has been underperforming globally over the past four months due to a slump in raw material prices.

The Euro Stoxx 600 Basic Materials Index has fallen 4.67%, while the Pan-European Stoxx 600 Index has risen 7.9% year-to-date.

Rate cutting hopes to fuel a near-term market rally

With global central banks likely to accelerate their easing cycles, equity markets could continue benefiting from pro-growth monetary policies in the short term.

The European Central Bank (ECB) is now anticipated to deepen its rate cuts for the remainder of the year, following unexpectedly sharp declines in business activity on Tuesday.

Data revealed that manufacturing and services PMIs are further contracting in major European economies, including France and Germany.

However, investors may become increasingly cautious amid worsening business conditions and the looming risk of a global economic downturn.

Recession fears persist, fuelled by worsening economic data and escalating geopolitical tensions, with ongoing conflicts in the Middle East and Ukraine.