Market Overview

FxPro: Chinese stimulus is not enough for markets to overcome risks for Europe and the U.S.

Chinese markets are booming on Monday morning, supported by the hopes for incentives. However, the risks associated with Saudi Arabia and the alertness around the Italian budget, and Brexit constrain the U.S. and European markets.

Chinese indices add almost 4% in the morning, developing a rebound of the last Friday. Chinese blue-chip index on the Shanghai Stock Exchange China A50 returned three quarters of the loss in October during the Friday and Monday rally.

At the end of last week, we saw a slowdown in the growth of the Chinese economy to a slowest pace since 2009. At the weekend, the representatives of the Central Bank and various commissions announced that they had been preparing a relief to support the economy. President Xi Jinping also announced the forthcoming measures to support the country’s private sector. Large-scale support for growth is another parallel to the current situation and that in 2009. Then, Beijing printed out impressive incentives for hundreds of billions of dollars, which successfully supported the economic growth. This positive example inspires the markets this time. Markets hope that the forthcoming incentives can be as effective and can avoid the negative effects of trade conflicts.

On the other hand, large-scale incentives are a sign that Beijing is not aimed at quickly resolving of the trade disputes with the United States, preparing for long-term economic consequences. But, apparently, market participants do not look so far, preferring to buy out the Chinese shares, the indices of which lost about 30% of the peak levels of January.

Nevertheless the futures on Indices of the USA show, cautious optimism, adding 0.1% from the levels of the opening of week. The sentiment about American indices is restrained by the fears about the consequences of the situation with the journalist Khashoggi’s murder. The U.S. response to that violence can trigger Riyadh’s answer and lead to significant economic consequences for Crude Oil prices and reduced cooperation between these countries. It is in the Trump’s interests to contain the rise in oil prices before the November interim elections.

In turn, the European bourses maintain a cautious attitude, as on Monday Italy should present explanations of the European Commission about the reasons of exceeding the deficit parameters in the budget for the coming year. Also on Monday, Premier May will speak in the UK Parliament with explanations around the negotiations with the EU on Brexit.

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