Market Moves: Euro Stocks Down, China's Pledge, Australia Interest Rate Pause

 (a daily blog post featuring 3 important news story in the financial markets)

Bottom Line Bulletin


European Stocks Decline - China at Fault


(LVMH Stock Price Chart)

Yesterday, I wrote about how China had disappointing second quarter GDP numbers. Yesterday, the effect of their numbers was apparent in the stock market. The weak data from China led to a decrease of investor confidence, shown through the performance of European stocks on Monday. The Stoxx 600 was down 0.6%, with luxury clothing conglomerate LVMH and Hermes dropping following the data that signaled a decline in consumer spending. Consumer products and mining sectors fell the most today, while health care and banks overperformed. During the month of July, Europe’s benchmark index has fallen dramatically, as investors are seemingly weary of the prospect of economic growth. Now the focus shifts to the second-quarter earnings season, where analysts expect to see the biggest year-on-year declines in European profits since 2021.


China Vows to Fix the Economy


Following China’s weak economic numbers, they vowed to “restore and expand” consumer consumption in order to boost their growth, using a plan that includes boosting household income, improving the business environment for private companies, and stabilizing youth employment. According to Jin Xiandong, an official with China’s National Development and Reform Commission, China’s road to economic recovery has been faced with insufficient demand, weak momentum, and weak confidence. He furthered that consumer purchasing power and expectations are weak while consumption infrastructure in China needs to be improved. Within hours, the Chinese Government formulated an 11-point plan to boost the domestic consumption of products and services. However, given China’s position as one of the largest economies in the world, seeing trouble there is not a good sign for the rest of the world’s economy.


Australia Central Bank Paused Interest Rates 


Australia's Central Bank decided to keep interest rates steady this month as policy was becoming restrictive and risked a sharp economic downturn as well as rising unemployment numbers. However, the Central Bank issued a warning that more tightening of interest rates may be necessary in order to fight the “inflation crisis” plaguing the world’s biggest economies. The Bank also is wary about some of the unrealized impacts of inflation thus far, namely higher rents, weak productivity and higher electricity prices. According to the transcript of the meeting, a 25 basis point increase was considered before the Bank decided to pause interest rates at their current level of 4.1%. This is the second pause since May of last year, when it started raising interest rates by 400 basis points in just 14 months. There is also a risk that economic growth slows more than expected, with the Board weary of possible rising unemployment numbers in that case. The board has decided to reassess this issue at their monthly meeting in August, after waiting for additional data on inflation, the global economy, the labor market, and household spending.


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