Stocks rally after China’s stimulus; Europe’s prospects are getting darker

LONDON (Reuters) – Global stocks rose on Tuesday, supported by a recovery in Asia, as the yuan rebounded after China pledged to step up support for its ailing economy, while signs of slowing European growth weighed on the euro.

China’s top leaders pledged late Monday to ramp up aid for the economy, which is struggling to sustain a post-COVID recovery and indicated there would be more to come for the real estate industry.

The MSCI All-World Index (.MIWD00000PUS) rose 0.2%, supported by gains in the Chinese stock market, with the mainland index (.SSEC) rising 1.9% and Hong Kong shares (.

But the positive momentum did not carry over to Europe, as stocks and the euro struggled to stay in positive territory, as fears of a recession resurfaced after regional polls the day before showed business activity contracting much more than expected in July.

“There are two things. First, as far as European and US traders are concerned, there are almost bigger fish to fry in this part of the world, with the Fed coming out tomorrow night and then the European Central Bank on Thursday,” said Michael Brown, market analyst at TraderX.

“The second thing is this week, certainly since Monday morning, we’ve seen a real big shift in the data coming out of Europe. The PMIs were, quite frankly, a disaster,” he said.

Monday’s purchasing managers’ indexes came in below expectations for the euro area as a whole, as well as in major economies like France and Germany, prompting traders to rethink what the European Central Bank might indicate regarding rate expectations when it meets on Thursday.

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Macro data on Tuesday provided evidence of the deterioration in business confidence in Germany this month. Demand for loans in the euro zone hit a record low in the second quarter as rising interest rates took a toll, according to a survey by the European Central Bank.

The Federal Reserve will issue its monetary policy decision on Wednesday.

Markets expect a 25 basis point rate hike by both the Federal Reserve and the European Central Bank this week, but after that prices diverge from policymakers’ rhetoric, meaning a lot of focus will be on their tone and outlook.

Europe cheers China

The European STOXX 600 Index (.STOXX) rose 0.2% on the day, led by mining stocks, which rebounded after China signaled it intends to support the economy. (.SXPP)

Consumer group Unilever (ULVR.L), maker of Dove soap and Ben & Jerry’s ice cream, rose 5% after beating expectations for core quarterly sales growth, which kept the FTSE 100 Index (.FTSE) in positive territory.

In currencies, the Chinese yuan rose 0.7% against the dollar to 7.1386 after stimulus measures with the help of state banks selling dollars at home and abroad in Asia.

The dollar index, which tracks the performance of the greenback against six others, fell 0.1% to 101.34.

The Australian dollar, which acts as a liquid proxy for the yuan, rose 0.5% to $0.677, while the euro struggled to rise above two-week lows. It last rose 0.1% to $1.1076.

The Japanese yen rose against the dollar, falling 0.2% to 141.27. Investors appear to be at a loss as to whether the Bank of Japan, which meets on Friday, might change its policy of keeping borrowing rates close to zero.

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In the US, Microsoft (MSFT.O), Google parent Alphabet (GOOGL.O), Visa (VN), General Electric (GE.N), and chipmaker Texas Instruments (TXN.O) are among the behemoths to report in the next day or two.

On Wall Street, the Dow Jones Industrial Average (.DJI) closed higher for a 10th day on Monday, posting the longest stretch of daily gains since 2017. This year’s technology-led rally seems to be finally widening across the market, and investors are optimistic about this week’s earnings reports.

“We were wrong,” Morgan Stanley’s Mike Wilson, probably the most notable stock gainer this year and whose call for the S&P 500’s decline was based on weak earnings, said Monday.

In the energy market, Brent crude and US crude futures were flat on the day at $82.71 per barrel and $78.74 per barrel, respectively.

Additional reporting by Ankur Banerjee in Singapore. Editing by Shri Navaratnam and Christina Fincher

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