China’s inventory frenzy is becoming a wet blanket

A look at the day ahead in European and global markets from Rae Wee

Investors hoping for a strong recovery in China after a week-long break on the mainland were disappointed on Tuesday when policymakers in Beijing offered only broad strokes on stimulus plans at a high-profile news conference .

The National Development and Reform Commission (NDRC) said it was “fully confident” it would meet its targets, but did not provide any of the details investors expect on China’s aggressive stimulus measures.

Although key mainland stock indexes rose 10 percent to multi-year highs shortly after the open, those gains were quickly pared.

Unlike on the mainland, shares in Hong Kong showed a sea of ​​red, with the Hang Seng index falling more than 10% at one point.

Analysts initially attributed the divergence to Chinese stocks lagging as Hong Kong rallied while the mainland was on holiday, but it became clear that markets were disappointed by the lack of specific stimulus from Beijing.

This created a negative opening for Europe, with futures down in Asian hours.

EUROSTOXX 50 futures fell 0.8%, while FTSE futures retreated 0.5%.

The economic calendar is relatively light for today, leaving the focus squarely on China, although fears of escalating conflict in the Middle East and a reassessment of Federal Reserve expectations will also remain on investors’ minds.

Oil prices retreated on Tuesday – partly reflecting events in China, although this was also due to a small step back from a strong rally earlier in the week on developments in the Middle East. Hezbollah fired rockets at Haifa, and Israel appeared poised to expand its offensive into Lebanon.

Concerns about oil supply disruptions have sent Brent and US crude futures up more than 10% for the month, and are unlikely to reverse anytime soon.

As for the Fed, the market’s short-lived belief that it would stay on an accommodative path evaporated after Friday’s blockbuster wages report. Market prices now point to just 50 more basis points of rate cuts through December.

The benchmark 10-year yield, reflecting less aggressive expectations, remained elevated above 4 percent on Tuesday, while the two-year yield neared its highest level in more than a month.

Key developments that could influence markets on Tuesday:

– European Central Bank, Federal Reserve policymakers speak

– German industrial production (August)

(By Rae Wee; edited by Edmund Klamann)