Europe close: Chinese interventions drive bounce in stocks

European equities bounced back on Tuesday after China intervened repeatedly to stabilise its currency, although economists and strategists sounded a cautious note.

The benchmark Stoxx Europe 600 finished 0.88% higher, France’s CAC 40 gained 1.53% and Germany’s DAX another 1.63%.

Stateside, the Dow Jones Industrial Average and the S&P 500 managed to eke out small gains on Monday albeit in choppy trading.

In Asia, stocks were mostly lower, with the exception of mainland China, where the Shanghai Composite ended up 0.2%.

“There are signs that markets are finding their feet again, with China’s Yuan remaining somewhat stable for a third session which appears to have finally brought some calm to Chinese equity markets,” said Craig Erlam, senior market analyst at Oanda.

“Of course, this could just be the calm before the storm which is why we may see investors proceed with caution in the next couple of days.”

Overnight, Beijing intervened repeatedly in the offshore yuan market provoking a spike in yuan lending rates in Hong Kong which may serve to deter speculation against the currency, market watchers said.

Acting as a backdrop, economists at JP Morgan reportedly pushed back their call for the first increase in Bank Rate by six months to November.

To take note of, Morgan Stanley's chief US economist Ellen Zentner told Bloomberg TV the American economy would hold up "well" in 2016 - despite rising interest rates - growing by 1.8%, with strength in the trade-weighted US dollar to be an important deciding factor for the Fed.

Zentner predicted the Fed would stay put at its March meeting and hike rates three times this year.

In European corporate news, retailers were in focus, with supermarket operator Morrisons surging in London after it delivered an unexpectedly solid Christmas trading update. Like-for-like sales were up 0.2% in the nine weeks to 3 January, beating expectations for a 2% drop.

Peers Tesco and Sainsbury were both firmly in the black. Sainsbury also benefited from data released by market research firm Kantar, which showed the supermarket chain’s market share has risen to 17% in the UK.

Debenhams’ Christmas sales also came in comfortably ahead of expectations, pushing the stock sharply higher.

German retailer Metro AG advanced after reporting strong Christmas sales, with revenue in line with expectations.

Car maker Peugeot was also on the front foot after it posted a 1.2% rise in 2015 sales thanks to strong demand in Europe.

Fiat Chrysler gained ground after chief executive Sergio Marchionne said the company would end the year at the top end of its financial guidance.

Front month Brent crude futures continued to spiral lower, falling 3.4% to $30.50 per barrel on the ICE.

“Short positions on oil prices are now at a record high but it’s times like these that a surprise squeeze higher can occur,” said Brenda Kelly, head analyst at London Capital Group.