European Stocks Gain as Traders Mull Rates Outlook, China Risks

(Bloomberg) — European stocks were little changed on Monday, with investor sentiment torn between optimism around a potential peak in US interest rates and further signs of trouble in the Chinese property market.

The Stoxx 600 closed just 0.2% higher in London, with sentiment subdued on concerns China’s economic recovery is being hampered by a worsening property slump, with data due Tuesday likely to show little evidence of a rebound in growth.

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China’s banking regulator has set up a task force to examine risks at Zhongzhi Enterprise Group Co., one of the nation’s top private wealth managers, after a unit missed payments on multiple high-yield investment products.

The retail sector led gains in Europe, while mining and energy underperformed. Volumes were about 25% lower than the 20-day average amid light summer trading.

Among individual movers, Koninklijke Philips NV jumped as the Agnelli family’s Exor NV bought a minority stake in the Dutch medical technology company. Covestro AG soared after Bloomberg reported Abu Dhabi National Oil Co. indicated it’s prepared to boost its informal offer for the firm to about €11.6 billion ($12.7 billion) on the condition the German chemicals group agrees to enter formal talks.

A rally in European stocks has moderated in August amid concerns around higher-for-longer interest rates. Poor seasonal support has also fed into the pullback in the past two weeks and market strategists have warned about a more challenging trajectory for gains into the year-end. 

Systematic investors are near maximum long on equities, and short-covering has run its course, implying they’re more likely to turn sellers if volatility shoots up, Barclays Plc strategists said in a recent note. Focus later this week will be on the minutes of the Federal Reserve’s latest policy meeting, with investors looking for clues on whether the central bank is likely to keep rates elevated for longer.

“This week, market participants will adjust their mood depending on a number of data points, including Chinese activity data, Fed minutes and UK inflation,” said Fabiana Fedeli, chief investment officer for equities and multi assets at M&G Plc. 

Fedeli added that she expects another 25-basis point hike from the Fed as core inflation remains “stubbornly high,” while sticky price pressures in the UK suggest the Bank of England has a “more difficult path ahead than other central banks.”

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—With assistance from Michael Msika and Kit Rees.

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