China Stocks Rally, Europe Flat Ahead of ECB Meet: Markets Wrap

(Bloomberg) — European stocks were set for a muted start after string of earnings reports added to investor caution ahead of the central bank’s rate decision later on Thursday.

Most Read from Bloomberg

Most-active futures contract tied to Euro Stoxx 50 Index were down 0.1%, while US stocks futures traded flat. Stockholm-based SEB reported lower-than-estimated net interest income for the fourth quarter, while Finnish telecom equipment giant Nokia reported said it sees challenging market conditions persisting after announcing better-than-expected quarterly numbers.

While the European Central Bank is expected to keep rates on hold, attention will be on clues for the path forward. Euro-area data on Wednesday showing private-sector activity contracted again in January points to the ECB holding off from rate cuts till June, according to Bloomberg Intelligence.

Most Asian equities rose on Thursday as a rally in Chinese stocks accelerated on bets that the latest stimulus measures from Beijing may provide a floor for the country’s cratering stock market. Hong Kong and mainland China shares extended Wednesday’s late jump after the People’s Bank of China surprised investors with a plan to cut banks’ reserve requirement ratio next month.

“Given where valuations are, an allocation to China could be an opportunistic trade right now,” Alice Shen, portfolio manager at VanEck Australia Pt, wrote in a note. “Should the forthcoming policies be successful in addressing these issues, we may look back upon the start of 2024 as the optimal time to buy.”

Still, doubts persist if the latest monetary stimulus will prove to be the panacea investors have been hoping for after a turbulent start to the new year. Since 2020, cuts to the RRR have not boosted China stocks, with CSI 300 benchmark losing nearly 4% three months after such a reduction.

“Given that earlier two cuts last year have failed to provide much turnaround in economic conditions, the eventual effectiveness of the latest cut is still brought into question,” said Jun Rong Yeap, market strategist at IG Asia. Yeap said he still sees the PBOC’s latest move to drive “some temporary unwinding in the extreme bearish sentiments for Chinese equities”.

The dollar strengthened against all of its major Group of 10 peers, while treasury yields declined 2 basis points in Asia trading. A poor auction saw the 30-year yields climbed to the highest level so far this year in Wednesday’s session.

In Japan, yield on the benchmark 10-year government bond extended Wednesday’s spike after an auction of 40-year debt drew weak demand from investors amid speculation that the Bank of Japan is close to ending its negative interest rate policy.

South Korea’s SK Hynix Inc., the world’s no. 2 maker of memory chips, dropped most in three weeks as investors assessed its fourth-quarter results and the outlook on the chip sector. Hyundai Motor’s fourth-quarter operating profit missed analysts’ estimate as stronger won weighed on earnings.

In the US, investors will parse a slew of US economic data — including gross domestic product — due Thursday, as they mull when the Federal Reserve will cut interest rates.

Elsewhere, oil advanced to trade near a one-month high after US crude inventories dropped by far more than expected. Bitcoin rose for the second straight day and traded near $40,000-mark.

Key events this week:

Eurozone ECB rate decision, Thursday
Germany IFO business climate, Thursday
US GDP, initial jobless claims, durable goods, wholesale inventories, new home sales, Thursday
Japan Tokyo CPI, Friday
US personal income & spending, Friday
Bank of Japan issues minutes of policy meeting, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 3:36 p.m. Tokyo time
Nasdaq 100 futures were little changed
Hong Kong’s Hang Seng rose 2.1%
The Shanghai Composite rose 2.9%
Euro Stoxx 50 futures were little changed

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0887
The Japanese yen fell 0.1% to 147.71 per dollar
The offshore yuan was little changed at 7.1665 per dollar

Cryptocurrencies

Bitcoin rose 0.3% to $39,895.38
Ether fell 0.2% to $2,211.2

Bonds

Commodities

West Texas Intermediate crude rose 0.4% to $75.41 a barrel
Spot gold rose 0.1% to $2,016.06 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Stephen Kirkland, Ruth Carson and Tassia Sipahutar.