European markets open higher as China unveils economic growth package

The main European benchmark indices opened higher on Tuesday, September 24following the People’s Bank of China (PBOC)’s announcement of further easing measures aimed at achieving its 5% annual growth target. Euro Stoxx 50 futures rose 1.14%, FTSE 100 futures rose 0.52% and DAX futures rose 0.73%.

China unveils largest package to boost its economy

Following the Federal Reserve’s massive rate cut last week, The People’s Bank of China (PBOC) announced a 0.5% cut in the required reserve ratio (RRR)which represents the percentage of deposits that banks must hold in reserves at the central bank. This rare measure was accompanied by a 0.2% reduction in the seven-day repo rateIn addition, the PBOC unveiled a historic $5.3 trillion (€4.8 trillion) package aimed at reducing mortgage rates and down payment requirements for second-home buyers.

The Governor Pan Gongsheng announced a liquidity injection of 500 billion yuan (64 billion euros) to support stock markets by allowing securities and insurance companies to invest in equities through loans from the central bank.

In response, stock markets across Asia soared, with theHang Seng Index jumping more than 3% and mainland Chinese markets up more than 2%The MSCI Asia Pacific Index rose 0.7%. However, Australia’s ASX 200 index fell slightly after the Reserve Bank of Australia (RBA) kept its interest rate steady and maintained a restrictive outlook.

European mining stocks likely to rise

The People’s Bank of China’s expansive stimulus measures to support its property market have also boosted prices for growth-sensitive commodities. Copper futures rose 2.1% to $4.44 per pound, the highest level since July. Precious metals also rallied sharply, with spot gold prices hitting a new high above $2,635 an ounce, while gold futures rose more than $10 to $2,663 an ounce. Silver futures rose 1.22% to $31.47 an ounce by 08:00 CEST.

Energy raw materials, such as crude oil and natural gasalso followed suit, benefiting from the broader rally in commodities. Iron ore futures (SGX TSI Iron Ore 62%) rose 1.1% to $92.40 per metric tonne.

Rising metal prices are likely to boost European mining and energy stocksgiving a boost to the industrial and materials sectors. China’s efforts to stabilise its beleaguered property market are expected to boost demand for industrial metals and critical minerals, which are key products for major mining companies such as Rio Tinto, Glencore, Anglo American and BHP.

In the last four months, The mining sector has underperformed globally due to the collapse in commodity pricesThe Euro Stoxx 600 Basic Materials Index is down 4.67%, while the pan-European Stoxx 600 Index is up 7.9% year-to-date.

Rate cuts are expected to boost a short-term market rally

As global central banks are likely to accelerate their easing cycles, equity markets could continue to benefit from growth-friendly monetary policies in the near term. The European Central Bank (ECB) is expected to cut interest rates further during the rest of the yearfollowing the unexpected drop in business activity recorded on Tuesday.

The data revealed that manufacturing and services PMIs continue to contract in major European economies, including France and Germany. However, Investors may become increasingly cautious as business conditions worsen and the looming risk of a global economic recession.

Recession fears persistfueled by worsening economic data and escalating geopolitical tensions, with ongoing conflicts in the Middle East and Ukraine.