European stocks slump as China-led rally loses steam

By Pranav Kashyap

(Reuters) – European stocks pared losses on Wednesday, helped by gains in basic resources, but showed signs that gains were slowing as China’s stimulus measures weighed on the economy.

Indices across Europe were flat at 519.33 after opening down 0.3%.

In Asia, Chinese stocks extended their stimulus-fueled rally for a second day while other markets struggled to find direction. (MKTS/GLOB)

Sweden’s benchmark OMXS 30 rose 0.4% after the central bank cut its key interest rate to 3.25% from 3.50% as expected and signaled further easing measures to come.

SAP fell 3.6% after reports that the German software developer is under investigation in the U.S. for alleged price manipulation. The stock was the largest weighting in the benchmark and dragged the technology subindex down 0.7%.

Oil and gas led the sector decline, falling 0.7% on concerns that China’s stimulus plan is not enough to spur demand. (O/R)

Basis Resources helped cushion losses, rising 0.2% to a two-month high amid signs of China’s stimulus plan. (MET/L)

The rise in luxury stocks such as LVMH and Hermes also supported the upward trend.

The 40 fell 0.4% after rising more than 1% in the previous session. The data showed that the country’s consumer confidence increased in September. The country’s employment data is released at 1000 GMT.

On Tuesday, China’s central bank rolled out its most significant stimulus since the pandemic began, aimed at pulling the economy out of a deflationary slump. The move sparked a rally in European stocks, with French luxury stocks among the biggest gainers.

But investors are keeping a close eye on the health of the U.S. economy. Overnight, data showed that U.S. consumer confidence unexpectedly fell this month, the biggest drop since August 2021. As a result, traders now see a 60.4% chance that the U.S. Federal Reserve will make another significant rate cut.

“The combination of China’s stimulus expansion and a dovish Federal Reserve is a good combination for risk assets,” said Elias Haddad, chief market strategist at Brown Brothers Harriman.

But he said the only risk was that “if the downturn in eurozone economic activity is as severe as the leading indicators suggest, it could be a headwind for European equities”.

Other notable stock moves included a 10.7% surge in Finnish engineering company Valmet Oyj after it secured a contract worth more than €1 billion in Brazil.