European Stocks Reach Record High Driven by China-Inspired Rally

European stock markets reached new record highs in mid-morning trading on Friday, boosted by a rally in Asia led by China.

At 05:13 ET, the pan-European Stoxx 600 index increased by 0.3%, reaching 526.92, after having hit an intraday high of 526.51 earlier in the session. Germany’s DAX index rose 0.6%, while France’s CAC 40 and the UK’s FTSE 100 both gained 0.3%.

Chinese Stimulus Expected

The People’s Bank of China significantly reduced interest rates and injected more liquidity into the banking sector on Friday in a bid to support the nation’s struggling economy and aim for a growth target of approximately 5% this year. These actions follow an earlier announcement of a separate stimulus package and are likely to be revealed ahead of a week-long holiday starting on October 1. High-level meetings within China’s Communist Party have raised concerns about the economic situation.

Reports indicate that cities like Shanghai and Shenzhen plan to lift key home purchase restrictions in the coming weeks. Additionally, officials are considering a major sovereign bond issuance of about 2 trillion yuan (approximately $284.43 billion). If these measures are implemented as anticipated, analysts project they could boost China’s GDP by around 0.4% next year.

The prospect of increased stimulus propelled Chinese stocks to their best weekly performance since 2008, while also benefiting luxury brands in Europe that rely heavily on Chinese consumers. Shares of high-end fashion groups, including LVMH and Kering, along with Hermes, Hugo Boss, and Burberry, all experienced gains. Moncler saw a surge after LVMH announced its intention to acquire up to a 22% stake in the Italian luxury outerwear company.

Inflation Trends in France and Spain

Inflation rates in France and Spain fell unexpectedly in September, heightening expectations that the European Central Bank will implement further interest rate cuts next month. In France, annual consumer price growth declined to 1.2% from 1.8% in August, lower than the forecasted 1.6%. Spain also saw a decrease, with inflation cooling to 1.5% from 2.3%, against projections of 1.9%.

Investors are expected to monitor upcoming personal spending and inflation data from the United States, which will offer insights into the state of the world’s largest economy as the Federal Reserve nears anticipated rate cuts later this year. The Fed had previously cut borrowing costs by 50 basis points.

Personal spending, which constitutes over two-thirds of economic activity, is projected to have increased by 0.3% in August, a slowdown from 0.5% in July. Economists also expect the personal consumption expenditures (PCE) price index, a key inflation measure used by the Fed, to rise by 0.2% month-on-month in August, aligning with July’s rate. Year-over-year, the PCE is expected to decelerate to 2.3% from 2.5%.

(Reporting contributed by other sources.)