European stocks follow Asia lower on weak Chinese economic data

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European stocks followed Asia lower on Monday after weak data raised concerns over the health of China’s economy, while traders waited for corporate earnings to gauge the impact of rising global interest rates.

Europe’s region-wide Stoxx 600 slipped 0.6 per cent, extending losses from the previous session, while France’s Cac 40 lost 1.2 per cent and Germany’s Dax gave up 0.5 per cent.

The indices were dragged lower by declines in the luxury goods sector, after data from China signalled that the world’s second-largest economy struggled to recover after three years of severe Covid-19 restrictions. Swiss company Richemont led the decliners, falling 9 per cent.

According to official data on Monday, China’s gross domestic product expanded 0.8 per cent in the three months to July, down from 2.2 per cent in the previous quarter, as falling exports, weak retail sales and a moribund property sector weighed on growth.

The country’s post-pandemic “revival is losing steam after the initial release of pent-up demand built during the zero-Covid policy era, while exports are falling amid ebbing global demand”, noted Duncan Wrigley, chief China economist at Pantheon Macroeconomics. 

The disappointing data weighed on oil prices, with Brent crude, the international benchmark, falling 1.3 per cent to trade at $78.88 per barrel, while US marker West Texas Intermediate fell by the same margin to $74.46. China is the world’s second-largest oil consumer after the US.

Investors’ focus turns to the upcoming meeting of China’s ruling politburo later in the month, where policymakers are expected to consider further possible support for the economy.

“Today’s data raises odds of more stimulus measures from China over coming weeks,” said Mohit Kumar, chief Europe financial economist at Jefferies.

“Given the market expectations have already been lowered on the China growth story, we could get some upward surprise from stimulus measures, which can support equity markets in the short term,” he noted.

China’s benchmark CSI 300 index slipped 0.8 per cent on Monday, while Hong Kong’s stock exchange suspended trading owing to a weather warning. Japanese markets were closed for a holiday.

Meanwhile, traders readied for the Federal Reserve Bank of New York to issue its Empire State Manufacturing Survey later in the day, with the index expected to have come in at minus 4.3 in July, down from 6.6 in the previous month.

The negative reading means the majority of survey respondents reported an overall contraction in factory activity, as the sector faltered following a prolonged period of rising US interest rates. 

US futures were subdued, with contracts tracking Wall Street’s benchmark S&P 500 losing 0.1 per cent, while those tracking the tech-heavy Nasdaq 100 were flat ahead of the New York open. 

With the earnings season well underway, traders turn their attention to tech companies this week; the electric-car maker Tesla is on Wednesday the first of the sector’s giants to report results.