Market Report: China

Market report: China’s stimulus pledge lifts sentiment, JD Sports on track but big tech loses ground…by Susannah Streeter

• China’s Premier Li Qiang pledges extra stimulus aimed at revitalising the recovery.
• S&P futures point to a slight lift on the open after fresh weakness seeped into Wall Street.
• FTSE 100 lifts in early trade with commodity stocks rising on growth hopes.
• The tech heavy Nasdaq lost 1.2% with big names like Nvidia, Alphabet and Meta falling sharply.
• JD Sports continues to benefit from big brand power
• Almost a third of UK firms are worried about the threat of insolvency, although the proportion has fallen since September.
• Oil prices stabilise with Brent Crude above $74 a barrel.

Susannah Streeter, head of money and markets. Hargreaves Lansdown:

‘’Hopes that efforts to fire demand in China will help the country reach its growth targets have put more of a spring in the step of equities. The FTSE 100 gained ground in early trade with commodity giants taking big steps forward amid expectations of higher demand for metals and minerals.

Pledges by Premier Li Qiang at the World Economic Forum for extra stimulus aimed at revitalising the economy and beefing up China’s trade links were aimed at washing away worries about the country’s faltering recovery.

The promise of a better performance in the second quarter, with 5% considered achievable for the year has helped solidify sentiment but investors will be watching closely for evidence of concrete action and will want to see measures brought forward soon given the recent downgrades by big banks and the ratings agency S&P Global.

Right now, though interest in Chinese authorities’ efforts to awaken demand is overshadowing concerns about the geo-political uncertainty following the rebellion in Russia and ongoing worries about the impact of tight monetary policy.

But this shift in focus may be short lived. Although S&P futures point to a slight lift on the open, the big bet on artificial intelligence has started to unravel with fresh weakness seeping into Wall Street. The tech heavy Nasdaq lost 1.2% in the last session as investors booked profits on some of the biggest tech names which have benefited from the rally like Nvidia, Alphabet and Meta. Investors are watching out for any data which could help indicate the path for interest rates ahead so the durable goods orders report due out later will be scrutinised for signs of a weakening in demand.

Friday’s personal consumption expenditure index will be a key metric to watch, given that April’s unexpectedly strong increase sparked worries about a more hawkish Fed. Although the pencilled in dot-plot indicates two further rate hikes could be ahead, those moves aren’t fully priced in so any evidence in this week’s data that consumers and companies are still resilient, could push stocks lower.

JD Sports has put in a solid performance showing the benefit of having a big footprint in diverse geographies. Although its US earnings veered off track in June, revenues ran ahead of expectations in other markets.

A moderating of sales in May in all regions was expected with sales slowing to 8% but it means the group is still on track to meet its full year profits expectations. Brand power is still a powerful force, and even as belts are tightened elsewhere, the desire for the latest must-have trainers or kit isn’t showing signs of slowing down dramatically.

As worries about the impact of high interest rates on the housing market rage in the UK, some firms appear to be taking a slightly more sanguine approach, with the attitude – ‘it could be worse’ with insolvency fears receding.

Back in September 47% of firms  judged they could fall insolvent in a year – now it’s down to 32% according to research by Evelyn Partners. However, it still shows almost a third of firms are clearly still worried about what lies ahead, and they are likely to be ultra-cautious about taking risks to expand, which doesn’t bode well for the UK’s growth prospects.

Oil prices have stabilised with Brent Crude firmly to a position above $74 on hopes of higher demand amid China’s stimulus promises, but tighter supply concerns on world markets given Russia’s unstable outlook are also part of the story. But as expectations still swirl about the possibility of recessions in the US, UK and the Eurozone, they are keeping a lid on prices.’’

Susannah Streeter is Head of Money and Markets and Podcast host for Hargreaves Lansdown’s Switch Your Money On