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European stocks rose on Monday as investors welcomed data released over the weekend that showed deflationary pressures in China had eased, raising hopes that the world’s second-largest economy is stabilizing.
Europe’s Stoxx 600 rose 0.5%, driven by gains in the basic materials sector, which tend to reflect expectations for demand from China. France’s Cac 40 index and Germany’s Dax index both rose 0.5%.
Inflation data showed consumer prices rose 0.1% in August after falling in July, with China’s benchmark CSI 300 index rising 0.7%.
But as new home sales in China’s largest city halved in the first week of the month, property stocks fell sharply, with Hong Kong’s Hang Seng Index falling 0.6%.
The Hang Seng Property Index, which measures Hong Kong’s top developers, fell 3.3%, while the mainland property index fell 1.8%.
The downturn in the real estate sector, which typically accounts for more than a quarter of China’s economic activity, prompted authorities this month to relax mortgage down payment requirements.
The latest stimulus measures follow a series of government policies aimed at boosting the country’s real estate sector, stock market and consumer confidence, all of which have struggled to recover after three years of tight pandemic restrictions.
China’s yuan rose 0.7% on Monday, rebounding from a 16-month low after the central bank stepped in to support the weak currency and set a stronger-than-expected trading fix.
At the same time, Bank of Japan Governor Kazuo Ueda raised the possibility of ending the period of negative interest rates before the end of the year. The yen rose 0.9% against the US dollar on Monday to 146.51 yen. Japan’s Topix rose 0.1%.
European investors are bracing for a busy week of economic data releases and the European Central Bank’s interest rate decision on Thursday.
While most market participants remain betting that the ECB will keep policy on hold in September, stronger energy prices and hawkish comments from policymakers last week have raised the likelihood of a rate hike to 39%.
Brent crude fell 0.3% to $90.38 a barrel but remained close to its highest level this year after OPEC+ producers Russia and Saudi Arabia announced further production cuts last week. U.S. West Texas Intermediate crude oil prices fell 0.6% to $87 a barrel.
Amsterdam TTF natural gas futures rose 9% as a strike at an Australian LNG production site continued.
“WTI or Brent prices were significantly higher in August compared to August last year, so we’re going to see a rebound in inflation everywhere and that’s due to the energy effect,” Chris Jeffery, head of rates and inflation strategy, said at LGIM.
“But we think [ECB] “We have the ability to look at the impact on energy prices this month,” he noted. “There are plenty of signs that the policy tightening to date is working and is slowing the pace of growth in Europe.”
Traders are also watching U.S. consumer inflation data on Wednesday for clues on the outlook for interest rates. Contracts tracking Wall Street’s benchmark S&P 500 rose 0.4%, while contracts tracking the tech-heavy Nasdaq Composite gained 0.6% before the New York open.
