European Markets React to Halt in China Equity Surge

European markets fell, mirroring an overnight tech-led dip on Wall Street, as China’s promise to help its economy disappointed investors looking for further stimulus.

The Stoxx 600 index (^STOXX) declined 0.8%, led by falls in miners and luxury companies, the sectors most sensitive to China’s economy.

Kering SA (KER.PA) and Burberry Plc (BRBY.L, BURBY) dropped more than 5%. Widely anticipated stimulus measures were missing from a press conference in Beijing, when officials promised to reach economic targets. A barometer of Chinese stocks in Hong Kong fell the most intraday since 2008.

This followed overnight falls in US shares, which were fueled by a tech selloff, geopolitical concerns, and speculations for a lesser Federal Reserve rate cut. US equities futures were largely unchanged. The Treasury curve steepened, but oil plummeted.

image European Markets React to Halt in China Equity Surge — Image Credit – Yahoo Finance

The briefing by China’s National Development and Reform Commission occurred just before the Golden Week vacation break, which sent stocks in China and Hong Kong soaring. Numerous investors, ranging from JPMorgan Asset Management to HSBC Global Private Banking, questioned the rally’s longevity.

“While the policy tone remains supportive, the limited new measures appear to disappoint markets for the time being,” said Lynn Song, Greater China senior economist at ING Bank NV. “Moving forward, the market trend will likely depend on the speed and strength of further policy follow-up from other ministries.”

The S&P 500 (^GSPC) dipped 1% on Monday, following a four-week winning streak. Treasuries fell more on Friday’s strong jobs news, with the 10-year yield exceeding 4%. In an interview with the Financial Times, New York Fed president John Williams stated that the Fed is “well positioned” to provide a smooth landing for the economy.

“Friday’s strong jobs report not only appeared to kill any chance of a 50-basis-point rate cut in November, it kickstarted chatter about the Fed leaving rates unchanged if economic data continues to come in hotter than expected,” claimed Chris Larkin of Morgan Stanley’s E*Trade. “But as last week showed, geopolitics can’t be ignored.”

The Middle East crisis continued to worry markets Monday, with combat rising on many fronts after a year of war. The Israel Defense Forces says it intercepted the majority of a barrage of rockets fired at Tel Aviv by Hamas and other Iranian-backed forces.

Brent crude surged to its highest level since August, as anticipation grew that Israel will attack Iran’s oil infrastructure. West Texas Intermediate climbed early Tuesday.

According to Morningstar’s Dave Sekera, any further geopolitical aggravation might fuel the risk-off trade, with growth shares lagging in value stocks.

“Typically, in a risk-off trade, you’re going to see rotation into defense stocks, but I’d be careful if you’re an investor today,” he told reporters. “Some defensive sectors are currently overvalued. Unlike a conventional risk-off strategy, I believe oil stocks will rise.

Key events this week of European markets :

Fed’s Raphael Bostic, Susan Collins, Philip Jefferson and Adriana Kugler speak, Tuesday
Fed minutes, Wednesday
Fed’s Lorie Logan, Raphael Bostic, Austan Goolsbee and Mary Daly speak, Wednesday
US initial jobless claims, CPI, Thursday
Fed’s John Williams and Thomas Barkin speak, Thursday
JPMorgan, Wells Fargo kick off earnings season for the big Wall Street banks, Friday
US PPI, University of Michigan consumer sentiment, Friday
Fed’s Lorie Logan, Austan Goolsbee and Michelle Bowman speak, Friday

Some of the main moves in markets:

Stocks