Global shares witnessed a positive uptick on Tuesday, primarily driven by an impressive rally in Asia. The Chinese yuan rebounded following China’s commitment to bolster its economy, while in Europe, concerns over a slowdown in economic growth weighed on the euro.
China Pledges Support for Struggling Economy
China’s top leaders made a late-night pledge on Monday to provide additional support for their economy, which has been grappling with sustaining its post-COVID recovery. The leaders also indicated further assistance for the property industry.
MSCI All-World Index Rises with Chinese Market Boost
The MSCI All-World index experienced a 0.2% rise, thanks to gains in the Chinese stock market. The mainland index soared by 1.9%, and Hong Kong stocks saw an impressive 3% surge, mainly driven by property stocks bouncing back from concerns related to debt repayment.
European Growth Concerns Weigh on Stocks and Euro
However, the positive momentum from Asia did not transfer to Europe. European stocks and the euro struggled to stay positive as fears of a recession resurfaced. Regional surveys indicated a more substantial contraction in business activity than expected in July.
Europe Anticipates Central Bank Decisions
Michael Brown, a market strategist with TraderX, pointed out two significant factors affecting European and U.S. traders. Firstly, traders have other concerns in the region with the Federal Reserve and European Central Bank meetings scheduled later in the week. Secondly, recent data from Europe has been disappointing, particularly the PMIs, raising concerns about the rate outlook when the ECB convenes.
Macroeconomic Releases Reinforce Concerns
Recent macroeconomic releases have added to the worries about Europe’s economic performance. Germany witnessed a deterioration in business confidence this month, and the demand for loans in the euro zone hit a record low in the second quarter due to rising interest rates.
Rate Hikes Expected from Fed and ECB
Markets are bracing for 25-basis-point rate hikes from both the Federal Reserve and the European Central Bank this week. However, there’s uncertainty beyond these anticipated hikes, with pricing diverging from policymakers’ rhetoric, making the tone and outlook of central bank officials crucial.
Europe Miners Benefit from China’s Commitment
Despite European market concerns, Europe’s STOXX 600 index inched up 0.2%, driven in part by the rallying shares of mining companies. China’s indication to support its economy buoyed investor confidence.
Unilever Rallies on Strong Quarterly Sales
Consumer group Unilever, known for brands like Dove soap and Ben & Jerry’s ice cream, saw its shares rally by 5% after beating underlying quarterly sales growth forecasts. This positive performance contributed to keeping the FTSE 100 in positive territory.
Currency Market Reactions
In the currency markets, the Chinese yuan strengthened by 0.7% against the dollar, reaching 7.1386, after the announcement of stimulus measures. The Australian dollar, often considered a proxy for the yuan, rose 0.5% to $0.677. On the other hand, the euro struggled to gain momentum and remained near two-week lows at $1.1076. The Japanese yen edged higher against the dollar, which fell 0.2% to 141.27, with investors uncertain about potential changes in the Bank of Japan’s policy on borrowing rates.
Upcoming Earnings Reports and Market Outlook
In the U.S., heavyweights like Microsoft, Google parent Alphabet, Visa, General Electric, and chipmaker Texas Instruments are set to report their earnings in the coming days. Wall Street’s Dow Jones continued its impressive rally, closing positively for the 10th consecutive day on Monday, which is the longest stretch of daily gains since 2017. This broadening of the tech-led rally across the market has left investors upbeat about the upcoming earnings reports.
Energy Market Remains Stable
In the energy market, both Brent and U.S. crude futures remained flat on the day, with Brent at $82.71 a barrel and U.S. crude at $78.74 a barrel, respectively.
As markets brace for central bank decisions and await earnings reports, investors will closely monitor developments in China’s efforts to support its economy and how European growth concerns evolve. The outlook remains uncertain, and market sentiment will heavily rely on how these key factors unfold in the days to come.