(Bloomberg) -- European stocks snapped two days of gains as doubts grew about the efficacy of China’s stimulus drive.
The Stoxx Europe 600 Index traded 0.1% lower at the close in London, with autos and energy stocks losing ground, even as Beijing lowered one-year policy rates by the most on record, adding to the steps announced a day earlier. Luxury and industrials shares advanced.
Investors are divided on the extent to which the measures might benefit European companies that have suffered from China’s economic slowdown. Citigroup and Barclays strategists say the latest policy easing, including rate cuts, mortgage repricing, and equity market support, improves the case for European cyclical stocks, while others, including Goldman Sachs strategists, don’t think it’s enough to turn things around.
Guy Miller, chief market strategist at Zurich Insurance Company Ltd. is in the latter camp.
“Wealthier households in China will benefit from lower interest rates but I am not sure sure it is enough to fundamentally shift the fortunes of European companies,” Miller said.
What’s more, confidence in European stocks is being dented by signs of a weakening economy. That’s making traders increasingly confident the European Central Bank will reduce rates again next month, seeing a roughly 60% chance of a quarter-point reduction in October, up from around 20% last week.
Over at the ECB, Governing Council member Klaas Knot said he expects gradual interest-rate cuts “in the near future” and in the first half of next year.
Daniel Murray, Zurich-based chief executive officer of EFG Asset Management, says the ECB is trying to balance the need to stimulate the economy without reviving inflation. But he warned of the risk that “keeping rates too high for too long adds to recessionary pressures.”
Among other stock movers on Wednesday, SAP SE shares fell as much as 4.3% after Bloomberg reported the software maker is among companies being investigated by the US for potentially conspiring to overcharge government agencies. Meanwhile Rightmove Plc slipped after its board concluded that REA Group’s increased proposal continues to be unattractive and “materially” undervalues the company.
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