European Stocks Gain As Traders Mull Rates Outlook, China Risks

(Bloomberg) -- European stocks edged higher on Monday, with investor sentiment torn between optimism around a potential peak in US interest rates and further signs of trouble in the Chinese property market.

The Stoxx 600 was up 0.2% at 9:03 a.m. in London. The index had opened slightly lower, tracking weakness in Chinese equities earlier in the day. The Asian country's economic recovery is being hampered by a worsening property slump, with data due Tuesday likely to show little evidence of a rebound in growth.

China's banking regulator has set up a task force to examine risks at Zhongzhi Enterprise Group Co., one of the nation's top private wealth managers, after a unit missed payments on multiple high-yield investment products.

The telecoms and banking sectors led gains in Europe, while mining and energy underperformed. Among individual movers, Koninklijke Philips NV jumped as the Agnelli family's Exor NV bought a minority stake in the Dutch medical technology company. Talanx AG also gained after raising profit guidance.

A rally in European stocks has moderated in August amid concerns around higher-for-longer interest rates. Poor seasonal support has also fed into the pullback in the past two weeks and market strategists have warned about a more challenging trajectory for gains into the year-end. 

Systematic investors are near maximum long on equities, and short-covering has run its course, implying they're more likely to turn sellers if volatility shoots up, Barclays Plc strategists said in a recent note. Focus later this week will be on minutes of Fed's latest policy meeting, with investors looking for clues on whether the central bank is likely to keep rates elevated for longer.

“This week, market participants will adjust their mood depending on a number of data-points, including Chinese activity data, Fed minutes and UK inflation,” said Fabiana Fedeli, chief investment officer for equities and multi assets at M&G Plc. 

Fedeli added that she expects another 25-basis point hike from the Fed as core inflation remains “stubbornly high,” while sticky price pressures in the UK suggests the Bank of England has a “more difficult path ahead than other central banks.”

SECTORS IN FOCUS:

• Auto stocks as Tesla rolled out a new round of price cuts in China, sending some Asian auto stocks tumbling on worries the move could restart a price war that had showed signs of abating.

For more on equity markets:

• Easy Gains Are Over as Summer Lull Grips Market: Taking Stock
• M&A Watch Europe: Philips, Synlab, GAM, TalkTalk, YouGov
• US Stock Futures Rise
• UK Pollster YouGov Eyes NY Listing: The London Rush

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--With assistance from Michael Msika.

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