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Stocks lifted by positive economic data from China

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Stocks in Europe and Asia rose on Friday, helped by positive economic data out of China and tailwinds from the successful listing of UK chip designer Arm.

Europe’s region-wide Stoxx 600 index advanced 0.9 per cent, extending its rally from the previous session when the European Central Bank lifted eurozone interest rates to 4 per cent for what could be the last time in this cycle.

The Cac 40 in Paris rose 1.4 per cent, the Dax in Frankfurt added 1 per cent and London’s FTSE 100 gained 0.9 per cent.

Investors sentiment was also bolstered by official data from China showing retail sales and industrial production in the country rose more than analysts had expected in August.

Consumer cyclical and basic materials stocks led gains in Europe, up 2 per cent and 1.4 per cent respectively, as these sectors are particularly sensitive to expectations of Chinese consumer spending. The Stoxx Europe luxury index advanced 2.7 per cent, with the Paris-listed retail giant LVMH up 3.8 per cent.

In Asia, Hong Kong’s Hang Seng rose 0.8 per cent and Tokyo’s Topix gained 1 per cent. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks briefly rallied following the data release before falling back to end the day down 0.7 per cent.

China’s economy has struggled to rebound after disruptive zero-Covid measures were lifted late last year, and investors are on high alert for signs that recent stimulus measures may be gaining traction.

“There’s a growing sense of optimism among a cohort of investors who believe that Beijing’s recent initiatives to stimulate the economy and stabilise financial markets are showing signs of success,” said Stephen Innes, managing partner at SPI Asset Management.

However, Innes added that “a single month of positive data isn’t sufficient to confirm a sustained path to recovery”.

The positive data came after the People’s Bank of China cut banks’ reserve requirement ratio by 0.25 percentage points to 7.4 per cent, freeing up an estimated Rmb500bn ($70bn) in liquidity for lenders.

Analysts at Goldman Sachs wrote in a note that the cut would help compensate for a recent surge in local government bond issuance in recent weeks, which has drained liquidity from the banking system and pushed up the cost of interbank lending.

“Injecting liquidity through the reserve requirement ratio cut would help suppress interbank interest rates amid high liquidity demand, and ensure low funding cost for banks,” the analysts wrote.

Market sentiment was also bolstered by the debut of chip designer Arm, which closed its first trading day up almost 25 per cent in New York. The company gained 6.2 per cent in pre-market trading on Friday.

The almost $5bn listing by the SoftBank-backed company marks the largest initial public offering on Wall Street in nearly two years, with day-one share price gains pushing its market capitalisation to more than $65bn.

Both the S&P 500 and tech-focused Nasdaq Composite closed almost 1 per cent higher on Thursday. Futures pointed to the S&P rising 0.1 per cent when trading begins on Wall Street later in the day.

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