Stocks in Europe and Asia saw gains on Friday, with positive economic data from China and the successful listing of UK chip designer Arm contributing to the market optimism. The Stoxx 600 index in Europe rose by 0.9%, while the Cac 40 in Paris, Dax in Frankfurt, and FTSE 100 in London all experienced increases. In Asia, Hong Kong’s Hang Seng and Tokyo’s Topix also saw gains.
The positive sentiment was further bolstered by official data from China showing better-than-expected retail sales and industrial production in August. This news particularly benefited consumer cyclical and basic materials stocks in Europe, as these sectors are highly sensitive to Chinese consumer spending. The Stoxx Europe luxury index advanced by 2.7%, driven by the strong performance of Paris-listed retail giant LVMH.
However, China’s economy has been facing challenges in its recovery following the lifting of zero-Covid measures. Investors are closely monitoring the impact of recent stimulus measures to determine if they are gaining traction. While there is some optimism among investors regarding the success of Beijing’s initiatives, experts caution that a single month of positive data is insufficient to confirm sustained recovery.
The positive economic data from China followed the People’s Bank of China’s decision to cut banks’ reserve requirement ratio by 0.25 percentage points to 7.4%. This move is estimated to free up around RMB500 billion ($70 billion) in liquidity for lenders. The cut aims to counterbalance the recent surge in local government bond issuance, which has drained liquidity from the banking system and increased the cost of interbank lending.
Analysts at Goldman Sachs believe that injecting liquidity through the reserve requirement ratio cut will help suppress interbank interest rates amid high liquidity demand and ensure low funding costs for banks.
Additionally, market sentiment was also boosted by the successful debut of chip designer Arm, which closed its first trading day on Wall Street with nearly 25% gains. The almost $5 billion listing, backed by SoftBank, marks the largest initial public offering on Wall Street in almost two years. Arm’s market capitalization exceeded $65 billion after its day-one gains. The positive performance of Arm’s shares is indicative of strong investor interest in the technology sector.
Overall, the positive economic data from China and the successful listing of Arm have contributed to a sense of optimism among investors. However, it is important to monitor the sustainability of these trends and remain cautious as the global economy continues to recover from the impacts of the pandemic.