by Claude Chendjou

PARIS (Reuters) – Major European stock markets, hit by a massive computer outage on Friday, could rebound on Monday after China’s surprise cut in short-term interest rates to support the economy.

The session should however be volatile or marked by a certain wait-and-see attitude at the start of a week rich in economic data that will provide elements on the evolution of the economic situation in Europe and the United States and the trajectory of key rates. Investors must also digest Joe Biden’s withdrawal from the race for the American presidential election in November and his support for his vice-president Kamala Harris to replace him.

According to the first available indications, the Parisian CAC 40 should gain 0.38% at the opening against a loss of 0.69% on Friday. The Dax in Frankfurt could advance by 0.56%, while the FTSE 100 in London should gain 0.58%. The EuroStoxx 50 index is expected to increase by 0.72% and the Stoxx 600 to rise by 0.59%.

China surprised markets on Monday by cutting a key short-term policy rate and its benchmark lending rates in a bid to boost economic growth. The People’s Bank of China (PBOC) said it would cut the seven-day repo rate to 1.7 percent from 1.8 percent.

For today’s session, no major indicators are on the agenda, but investors will take note this week, among other things, of the PMI activity indices in Europe and the United States, the US gross domestic product (GDP) for the second quarter and especially the US PCE price indicator, the Fed’s preferred measure of inflation.

On the corporate results side, however, many publications are still expected this Monday, including NXP Semiconductors and Verizon Communications in the United States, and SAP, Ryanair and Covivio in Europe, while the season is in full swing.

For the rest of the week, financial statements from stock market heavyweights such as Tesla, Alphabet, IBM, General Motors and Ford are also expected after a very positive first week of quarterly results (83% of the 70 S&P 500 companies that published their results beat the consensus).

A WALL STREET

The New York Stock Exchange closed down on Friday after a volatile session, following the chaos triggered by a global computer outage and ahead of the publication of results from major names on the stock market next week.

The Dow Jones fell 0.93% to 40,287.53, the S&P 500 lost 0.71% to 5,505 points and the Nasdaq Composite fell 0.81% to 17,726.94 points.

Of the 11 major sector indices in the S&P 500, energy was the biggest decliner, as crude prices hit their lowest level since mid-June on the strengthening prospect of a ceasefire in Gaza. Only health care and utilities ended in positive territory.

Over the week, the Nasdaq and the S&P 500 recorded their worst weekly streak since April. The Dow, which had a series of records at the start of the week, ended on a positive note.

In stocks, Netflix fell 1.5% after warning that the number of its additional subscribers in the third quarter would be lower than in the same period last year.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei index, penalized by the decline in technology stocks, fell by 1.16% to 39,599 points, marking a fourth session in the red. The broader Topix index lost 1.16% to 2,827.53 points.

Tokyo Electron fell 2.57%, Advantest 3.53% and Shin-Etsu Chemical 2.15%.

The MSCI index of Asia and Pacific stocks (excluding Japan) lost 0.7% after falling 3% last week.

In China, the Shanghai SSE Composite fell by 0.94% and the CSI 300 fell by 1.01%, hit by a decline in the energy (-2.28%) and financial (-1.1%) sectors, after the surprise drop in key rates.

According to analysts, investors see this decision above all as confirmation of the weakness of the Chinese economy.

“Overall, all the fundamentals indicate that China needs a lower rate environment, especially the real rate which is very high (…) in this type of disinflationary environment,” notes Gary Ng, Asia-Pacific economist at Natixis in Hong Kong.

“I think the general trend is that it fits pretty well with the fact that the economy is not so good, and there seems to be a bit of urgency on the part of the authorities to stimulate it now.”

CHANGES

The dollar gained 0.06% against a basket of reference currencies.

The euro gained 0.04% to $1.0881, while the pound sterling traded at $1.2911 (-0.06%).

The offshore yuan fell 0.10% to 7.2939 against the dollar after the decision by the People’s Bank of China.

RATE

The yield on 10-year U.S. Treasury notes fell about two basis points to 4.2174%, after gaining 5.1 points on Friday.

That of the German Bund of the same maturity is stable, at 2.459% after an increase of 5.3 basis points on Friday.

OIL

Oil prices rose on Monday as the market looked for signs of a September rate cut by the US Federal Reserve (Fed).

Brent rose 0.52% to $83.06 per barrel and US light crude (West Texas Intermediate, WTI) rose 0.6% to $80.61.

(Written by Claude Chendjou, edited by Kate Entringer)

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