European stocks have kicked off November on a high note after a sharp rally in China’s markets and as investors gear up for a key monetary policy announcement from the US Federal Reserve later this week.
The regional Stoxx 600 Europe added 1.1 per cent in early dealings and London’s FTSE 100 gained 1.5 per cent. The gains followed a sharp rise in shares on mainland China and in Hong Kong. The CSI 300 index of equities in Shanghai and Shenzhen jumped 3.6 per cent, while Hong Kong’s Hang Seng lurched 5.2 per cent higher.
Analysts said the rise, which helped offset some of the losses sustained since the end of the Chinese Communist party’s 20th congress a week ago, was fuelled by unverified rumours circulated online that China’s government had created a task force to consider reopening plans for next year.
Most of the day’s gains came after social media posts made shortly before the close of the Hong Kong morning session suggested, without naming sources, that China had established a “reopening committee” to assess different reopening scenarios for early next year.
Analysts said buying appeared to be motivated by the rumours, but were sceptical of their veracity.
“There are quite a few institutions buying shares today,” said Louis Tse, managing director at Hong Kong-based brokerage Wealthy Securities.
“The numbers are there, and there is heavy turnover, but if China opens it will do so gradually, rather than in one go. They can’t afford to have that many cases all of a sudden.”
Contracts tracking Wall Street’s benchmark S&P 500 also rose, up 0.8 per cent, while those tracking the tech-heavy Nasdaq 100 traded 1 per cent higher.
The S&P 500 fell during the previous session but notched up gains of nearly 8 per cent for October. Investors are braced for a Fed decision that could help set the trajectory for markets in coming weeks.
The Fed has this year raised its key policy rate from close to zero to about 3 per cent in an aggressive tightening of monetary policy that has dragged US stocks down from all-time highs hit in January.
Still, the central bank’s Federal Open Market Committee is expected to implement its fourth consecutive 0.75 percentage point rate rise on Wednesday in an attempt to cool inflation that remains at the highest level in decades.
Investors will be watching for signals that the bank could soon slow the rate at which it raises rates, as fears mount that the US economy is on the cusp of a recession.
A team of JPMorgan analysts led by chief economist Bruce Kasman said they expected the Fed to slow its pace of rises to 0.5 percentage points in December, and that there were “hints” of a shift in outlook elsewhere.
The European Central Bank last month lifted its deposit rate by 0.75 percentage points for the second consecutive time and signalled that its fight against inflation was far from over. Snippets of the bank’s less aggressive forward guidance were seized on by investors, however, and many expect the ECB to implement a smaller rate rise next month.
Kasman said “fading fiscal stress in the UK” had similarly “opened the door” to a possible 0.5 percentage point rate increase at this week’s Bank of England meeting — the first since former prime minister Liz Truss’s unfunded tax cuts unleashed turmoil on the country’s government bond market.
Britain’s inflation rate rose to a 40-year high in September, yet Lee Hardman, currency analyst at MUFG, said a “recent shift in the balance between inflation and growth risks” had pared back expectations for the BoE’s terminal rate, from about 6 per cent to 4.75 per cent.
In government bond markets, the yield on 10-year US Treasuries fell 0.09 percentage points to 3.99 per cent as its price rose. The yield on the equivalent UK government bond declined 0.08 percentage points to 3.45 per cent.