Chinese stocks get a reality check; Europe is shaking

A look at the day ahead in European and global markets by Tom Westbrook

Gravity brought China’s rising stock market back to earth with a thud on Wednesday. Disappointment over the failure to follow through on stimulus promises has led to a setback in a spectacular rally and could portend further weakness in China-exposed asset trading in London and Europe.

At the time of writing, the Shanghai Composite was down more than 5% and heading for the biggest slump since the February 2020 pandemic.

A revival in Hong Kong was quickly extinguished. Metals and other commodities declined, along with Chinese proxies such as the Australian dollar. (.HK)(MET/L)(AUD/)

China watchers say yesterday’s National Development and Reform Commission press conference was never going to be the forum for a substantive policy announcement.

“More patience please,” HSBC economist Jing Liu noted in a note noting that we have yet to hear from the State Council or the Ministry of Finance on the details of the stimulus measures.

But it is clear that the opportunity to reassure the markets has been missed, and the rally is unlikely to be sustainable until authorities show investors the money, and lots of it.

Volatility in China already dragged down European miners and luxury stocks on Tuesday, but further falls in iron ore prices and the selling of Rio Tinto and BHP shares in Sydney indicate more pressure ahead. (.AX)(.L)(.EU)

Elsewhere, the New Zealand dollar slipped past its 200-day moving average as the central bank cut rates by 50 basis points, leaving the door open for further cuts – just as markets are scaling back expectations for US rate cuts.

Indian government bonds rose after FTSE Russell announced their inclusion in the emerging markets index. South Korean government bonds were added to the FTSE World Government Bond Index (WGBI), but did not trade due to a holiday.

The minutes for the September Federal Reserve meeting will be released later in the session, although they may not add much as Fed officials have been on hand in recent days pointing out that last week’s strong jobs data is positive for the economy.

The story continues

Key developments that could impact the markets on Wednesday:

– German trade data

– September Federal Reserve Minutes

(Editing by Muralikumar Anantharaman)