China CPI and Economic News Weigh on European Markets

China has reported disappointing consumer price growth for September, revealing that the situation may negatively impact European luxury stocks. Weakening economic indicators and underwhelming inflation figures point to persistent challenges in China’s economy.

Weak Inflation and Economic Outlook in China

Recent data from the National Bureau of Statistics highlights that China’s Consumer Price Index (CPI) increased by just 0.4% year-on-year in September, a decline from 0.6% in August. The core CPI saw an even more disappointing increase of only 0.1%, marking the lowest growth since February 2021. Additionally, factory gate prices, as recorded by the Producer Price Index (PPI), plummeted by 2.8% compared to the same period last year, continuing a deflationary trend for the 24th consecutive month.

The Chinese Finance Ministry’s plans to address the housing market slump were discussed, but lacked the specifics investors were hoping for. Finance Minister Lan Fo announced that China would provide support to local governments burdened with debt and would purchase unsold homes, indicating potential for increased debt and fiscal deficit. However, he refrained from detailing the size of the proposed package or announcing new initiatives to stimulate consumption—a move that could further erode investor confidence.

Kelvin Wong, a senior analyst at Oanda, stated, “Short-term sentiment towards the Hong Kong and China stock markets is likely to remain volatile as the window is closing for policymakers to meet traders’ earlier optimistic expectations.” This sentiment underscores the uncertainty lingering in Chinese markets.

Another key economic indicator on the horizon is the upcoming third-quarter Gross Domestic Product (GDP) report. Analysts are concerned that China may miss its 5% growth target for the year, especially after reporting a lackluster GDP growth of 4.7% in the second quarter, a drop from 5.3% in the first quarter.

European Luxury Stocks Face Pressure Amid Chinese Economic Uncertainty

China’s recent announcements of stimulus measures—including key lending rate cuts and easing down payment requirements for homebuyers—initially sparked optimism. The Chinese stock market surged nearly 30%, with European sectors sensitive to Chinese demand, such as luxury and mining, rising over 10% in the wake of these policies.

Luxury brands like LVMH, Hermès, Kering, and Burberry closely monitor Chinese consumer demand, which serves as a crucial indicator for European consumer stocks. Following surging expectations, this sector encountered setbacks last week, with declines of 0.86% and 1.75%, signaling a potential downturn in enthusiasm linked to Chinese market conditions.

Dilin Wu, a research strategist at Pepperstone, expressed skepticism about the longevity of the recent rally in luxury stocks. “China’s macroeconomic landscape remains troubling, with persistent deflation rooted in a growth model that prioritizes production over consumption,” she remarked, highlighting the nation’s focus on manufacturing output rather than consumer spending.

As European markets gear up for a critical earnings season, the timing of key reports from LVMH, Hermès, and Kering could further influence market dynamics. Despite potential volatility stemming from Beijing’s lagging stimulus effects, some analysts maintain a hopeful outlook, anticipating a recovery in Chinese consumer spending in the long term, even if immediate results remain muted.

Photo credit & article inspired by: Euronews

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