Stocks rise after China stimulus; The outlook for Europe darkens

LONDON, July 25 (Reuters) – Global stocks rose on Tuesday, boosted by a rally in Asia, where the yuan rose after China pledged to increase support for its sputtering economy, while evidence of a slowdown in European growth weighed on the euro.

China’s top leaders pledged late Monday to step up aid to the economy, which is struggling to sustain a post-Covid recovery, and signaled more to come for the property industry.

The MSCI All-World Index (.MIWD00000PUS) rose 0.2%, boosted by gains in Chinese stocks, where the mainland index (.SSEC) rose 1.9% and Hong Kong shares (.HSI) rose 3%.

But the positive momentum didn’t carry over into Europe, where stocks and the euro struggled to stay on positive ground as worries about a recession resurfaced after regional surveys the previous day showed business activity contracted more than expected in July.

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

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

Buying manager indices on Monday came in below expectations across the euro zone and in key economies such as France and Germany, prompting traders to reconsider what the European Central Bank may signal in terms of its rate outlook when it meets on Thursday.

Macro releases on Tuesday offered evidence of a decline in business confidence in Germany this month, and demand for loans in the euro zone hit its lowest level in the second quarter as rising interest rates took their toll, according to an ECB survey.

The Federal Reserve releases its monetary policy decision on Wednesday.

Markets expect 25-basis-point rate hikes from both the Fed and the European Central Bank this week, but pricing beyond that differs from policymakers’ rhetoric, meaning more attention will be paid to their tone and outlook.

Europe miners cheer China

Europe’s STOXX 600 (.STOXX) rose 0.2% on the day, partly led by shares of mining companies, which rallied after China signaled that the economy was under pressure. (.SXPP).

Unilever ( ULVR.L ), the consumer group that makes Dove soap and Ben & Jerry’s ice cream, rallied 5% after beating quarterly sales growth forecasts, keeping the FTSE 100 ( .FTSE ) in positive territory.

In currencies, the Chinese yuan rose 0.7% to 7.1386 against the dollar after stimulus measures helped onshore and offshore state banks in Asia sell dollars.

The dollar index, which measures the U.S. currency’s performance against six other countries, was down 0.1% at 101.34.

The Australian dollar, which serves as the yuan’s liquid counterpart, rose 0.5% to $0.677, while the euro struggled to pull above two-week lows. It was last up 0.1% at $1.1076.

The Japanese yen rose against the dollar, which fell 0.2% to 141.27. Investors seem divided on whether the Bank of Japan, which meets on Friday, will change its policy of keeping lending rates close to zero.

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

On Wall Street, the Dow Jones (.DJI) closed for a 10th straight day on Monday, marking its longest daily gain since 2017. This year’s tech-led rally finally appears to be spreading across the market, and investors are excited about this week’s earnings reports.

Morgan Stanley’s Mike Wilson, perhaps the most prominent equity bear this year and a call for a lower S&P 500 based on poor earnings, said on Monday: “We were wrong”.

In the energy market, both Brent and US crude futures were flat at $82.71 and $78.74 a barrel, respectively.

Additional reporting by Ankur Banerjee in Singapore; Editing by Sri Navaratnam and Christina Finzer

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