Europe: Stocks rise as China re-opening offsets rate fears

EUROPEAN shares rose strongly on Monday (Jun 6), helped by banks and commodity-linked stocks, while investors kept an eye out for US inflation data and details from a European Central Bank meeting later this week.

The pan-European STOXX 600 index rose 0.8 per cent after ending 0.9 per cent lower last week on concerns about economic growth, amid rising prices and bets of monetary policy tightening by major central banks.

Banks, which typically appreciate in a high-interest-rate environment, rose 1.4 per cent on Monday.

Miners climbed 2.0 per cent, while luxury stocks also rallied. Both sectors derive significant demand from China, and rose after the authorities eased more curbs in Beijing and Shanghai.

Buying this morning is being spurred by easing Covid-19 curbs in China, and strong US jobs data last week assuaging some worries that the US Federal Reserve’s aggressive tightening will tip the US economy into recession, said Stuart Cole, head macro strategist at Equiti Capital.

London’s commodities heavy FTSE 100 jumped 1.2 per cent after an extended weekend.

The European Central Bank is set to announce an end to bond purchases this week and formally begin the countdown to an increase in borrowing costs in July, joining global peers tightening monetary policy in the face of hot inflation. The central bank is set to strengthen its commitment to support vulnerable euro-area debt markets if they are hit by a selloff, Financial Times reported.

“Liquidity is going out of the market and what that means is it will have an impact on the equity markets,” Charu Chanana, Saxo Capital Markets market strategist, said on Bloomberg Television. “We do expect that the drawdown in the equity markets still has some room to go.”

Elsewhere, the pound gained and gilts fell as traders shrugged off risks around a confidence vote on British Prime Minister Boris Johnson’s leadership.

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Tech stocks and crypto are vulnerable in the era of quantitative tightening, our latest MLIV Pulse survey shows. REUTERS, BLOOMBERG