15th Sep 2023 10:27
(Alliance News) - European equities climbed on Friday, with luxury retail leading the way, as investors cheered better China data and new support measures from the nation's central bank.
Not only were retail sales in the world's second-largest economy better-than-expected, the People's Bank of China cut the amount of cash lenders need to keep in reserve – a move aimed at freeing up cash for loans.
Though markets perked up in the wake of the data, analysts were cautious. The better data for August may not mean the Chinese economy is out of the woods.
The FTSE 100 in London was up 0.6% in mid-morning trade, with Burberry Group PLC among its best performers, up 2.4%. The CAC 40 in Paris, stacked with luxury goods firms, surged 1.4%. LVMH Moet Hennessy Louis Vuitton SE was 3.6% higher.
"The economic gauges today in conjunction with the latest RRR cut have financial markets feeling better about things on the China front to round out the week. While the numbers today are pleasing from the perspective of risk-appetite, investors will probably want to see a trend of better data start to develop before being lured back into Chinese assets with any conviction," KCM Trade analyst Tim Waterer commented.
Chinese retail sales jumped last month, data showed Friday, beating expectations.
Retail sales jumped 4.6% on-year in August, the National Bureau of Statistics said. That marks a big improvement on July's 2.5% and was far better than the 3.0% forecast in a survey of economists by Bloomberg.
Meanwhile, industrial production climbed 4.5% on-year, which was also a big increase from 3.7% in July and more than the 3.9% estimated.
SPI Asset Management analyst Stephen Innes said the data was a promising step in China's "recovery wagon".
"There's a growing sense of optimism among a cohort of investors who believe that Beijing's recent initiatives to stimulate the economy and stabilize financial markets are showing signs of success, following the sharp sell-off in August that witnessed record foreign fund outflows from onshore China stocks," Innes added.
"However, it's essential to exercise caution, as it's still early in this process, and a single month of positive data isn't sufficient to confirm a sustained path to recovery. There have been indications that the initial surge in spending activity seen earlier this year is starting to taper off, and the persisting challenges in the real estate sector remain a significant hurdle to overcome. Monitoring the situation and its long-term trends will be crucial in gauging the full extent of the recovery."
ING analyst Robert Carnell commented: "While the overall economic background remains a very challenged one, there were some more positive signs in the latest data deluge, though all things related to the property market continue to struggle.
"Breaking the data down by component, the standout result was the 4.6%YoY rise in retail sales. This was up from only 2.5% in July, though the year-on-year, year-to-date (ytd) growth still slowed slightly. With the historical comparisons so messed up by lockdowns and re-openings, we prefer to look at our own seasonally adjusted real retail sales series. And this shows that sales actually picked up in real terms in August from July, and are now close to their long-run trend."
Carnell believes the retail sales data is both good and bad.
"Good as retail sales seems to have turned the corner. Bad, because this probably means growth will be more pedestrian from now on," the analyst explained.
By Eric Cunha, Alliance News news editor
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