China Rallies, Europe Dips: US Market Outlook For Labor Day-Shortened Week

While the U.S. markets are closed for the Labor Day holiday, the announcement of stimulus measures in China is ushering in a much-needed relief rally for equities in both the Hong Kong and mainland China markets.

Conversely, growing economic concerns in Europe are raising cautionary flags among investors, suggesting that the era of robust corporate profits may be fading.

In the currency market, both the euro and pound were up slightly, gaining 0.2% and 0.3% respectively.
WTI crude hit a 9-month high at over $86/barrel on Monday, up 0.6%, buoyed by rising Chinese demand prospects and OPEC+ supply concerns. Gold held steady at $1937/oz.

Chinese Stocks Soar Amidst Government’s Commitment to Stimulus

On Monday, the Hang Seng Index, as tracked by the iShares MSCI Hong Kong Index Fund EWH surged by 2.51%, gaining 462.1 points to close at 18,844.2, reaching a three-week-high. This increase followed Beijing’s move to permit its major cities to decrease initial payments for homebuyers and incentivize lenders to reduce interest rates on current mortgages. Economists from Morgan Stanley also suggested that China may implement fiscal policy easing and address local debt concerns in the coming months.

Notably, Country Garden Holdings Co. Ltd. CTRYY, a troubled developer facing a grace period ending on Sept. 5-6 for $22.5 million in due interest, obtained creditor approval over the weekend to extend a yuan bond’s maturity, resulting in a substantial 14.6% increase in its stock value.

Other top-performing offshore Chinese stocks included China Resources Land Ltd. CRBJY with a 9.7% increase, Semiconductor Manufacturing International Corp with a 9.4% gain, and China Overseas Land & Investment CAOVY up 8.3%. Additionally, Tencent Music Entertainment Group TME led gains among large-cap Chinese tech stocks.

Chinese electric car manufacturers NIO Inc. NIO, Xpeng Inc. XPEV, and Li Auto Inc. LI successfully met their vehicle delivery targets, aligning with their third-quarter guidance.

The CSI 300 Index, representing onshore China shares, closed up 1.5%, adding to its previous Friday’s gains.

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Chart: Offshore Chinese Stocks Post Best-Performing Session In Over A Month

Europe Struggles To Hold Gains As Economic Fears Resume

Major European stock markets ended the day in the red, with the pan-European Euro Stoxx 50 Index, as tracked by the SPDR DJ Euro STOXX 50 ETF  FEZ, closing down 0.2%, marking its fourth consecutive session in negative territory.

In July 2023, Germany’s trade surplus fell to €15.9 billion from June’s €18.7 billion, missing market expectations of €18 billion. This drop resulted from a 0.9% decline in exports and a 1.4% surge in imports compared to the previous year.

Last week, the Euro Area’s economic sentiment indicator in August 2023 dropped for the fourth consecutive month to 93.3, falling short of the expected 93.7 and marking its lowest level since November 2020. Additionally, Germany’s manufacturing PMI remained unchanged at 39.1 in August 2023, the second-lowest reading since May 2020.

Among stock movers, Mercedes-Benz Group AG MBGAF led with a 1% gain as it unveiled its new Concept CLA Class, a significant move into the electric vehicle market. The car boasts a range of 750 kilometers (466 miles) on a single charge and a 15-minute charging time. Other top performers included ASML Holding N.V. ASML, up 0.8%, and Adidas AG ADDYY.

Conversely, Compagnie de Saint-Gobain CODYY was down 3.2%, and RWE AG RWEOY was down 2%, ranking among the day’s worst performers.

Meanwhile, Danish health-care giant Novo Nordisk A/S NVO hit fresh all-time highs as the company launched its Wegovy’s weight-loss drug in the UK.

Chart: Euro Stoxx 50 Index’s Bull Run Is Now Halted

Key Data To Monitor This Week In The US

The upcoming week in the United States is expected to be relatively quiet in terms of economic data releases.

The spotlight will be on Wednesday’s flash estimate of the ISM Services PMI for August. Economists anticipate a slight dip in the key service activity gauge from 52.7 to 52.5, although it is expected to remain in expansionary territory.

Other data to monitor include:

• July’s Factory Orders (Tue.): -2.5% month-on-month expected
• IBD/TIPP Economic Optimism For September (Tue.): 41.1 expected; 40.3 previous
• July’s Balance of Trade (Wed.): -$68 billion expected
• MBA 30-Year Mortgage Rate (Wed.): 7.31% previous
• Initial Jobless Claims For The Week Ending Sept. 2, 2023: 233,000 consensus, 228,000 previous

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