European Shares Near Six-Week Highs on China Stimulus Hopes

European stocks hovered near six-week highs on Monday, buoyed by gains in mining and luxury sectors following signs of stimulus measures aimed at reviving China’s slowing economy.

Market Overview

The pan-European STOXX 600 index edged up 0.1% by 1000 GMT, extending its rally to an eighth consecutive session. However, Germany’s DAX slipped slightly by 0.1% after touching a record high earlier in the day.

Key Drivers

1. China’s Policy Shift
   Reports from a Politburo meeting suggested that China will adopt an “appropriately loose” monetary policy in 2024, marking its first significant loosening since 2010. This shift has fueled optimism among investors, particularly those in sectors heavily reliant on Chinese demand.
   • Miners surged 2.8%, reflecting confidence in raw material demand.
   • Luxury brands LVMH and Richemont advanced over 2%, driven by expectations of increased Chinese consumer spending.
     Lewis Grant, senior portfolio manager at Federated Hermes, noted that while the announcements are largely “wording rather than action,” the tone remains positive for economic prospects.
2. Energy Stocks Rise Amid Geopolitical Concerns
   Energy stocks climbed 1.2%, supported by higher oil prices following the reported fall of Syrian President Bashar al-Assad. The potential for further instability in the Middle East has added to supply concerns, boosting crude prices and energy sector performance.
3. Aerospace and Defence Weakness
   Europe’s aerospace and defense index fell 1% to a one-week low, weighed down by broader market caution and shifting investor focus.
4. Upcoming Central Bank Actions
   Market participants await key U.S. inflation data on Wednesday, which could influence the Federal Reserve’s rate decisions. The European Central Bank is also expected to reduce rates by 25 basis points on Thursday, further shaping monetary policy expectations.

Individual Stock Movements

• CompuGroup Medical soared 32% after announcing advanced acquisition talks with CVC Capital Partners at a proposed price of €22 per share.
• Hellofresh dropped 6.7%, impacted by reports of a U.S. investigation into allegations of child labor.
• Banco BPM traded flat, while UniCredit dipped 0.9% after Credit Agricole revealed plans to raise its stake in Banco BPM.

Despite positive sentiment, Federated Hermes’ Lewis Grant cautioned that the current bullishness may face challenges in the new year as investors contend with economic realities. For now, stimulus expectations from China and central bank actions remain key drivers for European markets.