European shares rise on China stimulus; luxury stocks shine

By Pranav Kashyap

(Reuters) -European shares traded on a positive note Tuesday, as China’s sweeping stimulus measures boosted stocks of luxury companies and miners.

The pan-European STOXX 600 index gained 0.9% to 520.88 points by 0810 GMT. The stand out regional performer with a 1.5% jump was France, which is home to a host of luxury brands.

China’s top financial regulators unveiled their biggest stimulus since the pandemic, saying they would cut bank reserves by 50 basis points while reducing mortgage rates.

Luxury companies, which rely heavily on Chinese consumer spending, were the biggest boost on the index.

LVMH, Hermes, Kering (EPA:PRTP), Dior, and Burberry gained between 4% and 5%.

“The Chinese consumer is by far the biggest market for European luxury sales. That is the connection investors are making and taking a leap of faith that this Chinese monetary stimulus will feed through into the spending power of the Chinese consumer,” said Ben Laidler, head of equity strategy at Bradesco BBI.

Basic resources led sectoral gains, jumping 4.5%, and set for their best day in nearly two years, as copper prices hit a two-month high supported by China’s measures and improving demand in the region. [MET/L]

Britain’s FTSE gained 0.6%, as stocks of metal miners rose on China’s stimulus plans.

Another driver for investor sentiment is potential further rate cuts by the U.S. Federal Reserve. Markets are currently evenly split on whether the U.S. central bank will go for another 50 basis points cut or a 25 basis points cut in November, the CME Fedwatch tool showed.

Bradesco BBI’s Laidler noted that the Fed becoming more aggressive is opening up room for other central banks like the European Central Bank to follow suit and accelerate their rate- cutting cycle.

“The stars are sort of realigning for Europe. The Fed keeping the door open for another big rate cut is a positive tailwind for Europe,” he said.

The markets will also keep an eye out for comments from ECB board member, Elizabeth McCaul, set to speak later in the day.

Data showed German business morale fell more than expected in September. Still, Germany, which is home to a large number of luxury carmakers, saw its benchmark index tick up 0.8%.

Among individual stock moves, UK engineering firm Smiths Group (OTC:SMGZY) lost 8% after its annual profit missed estimates.