Europe close: Energy plays help to lift continental bourses

Monday saw European shares finishing with a mostly positive performance, influenced in part by China's decision to reduce its key interest rate.

The pan-European Stoxx 600 closed up 0.06% at 448.70 points.

Germany's DAX made a subtle climb of 0.13% to finish at 15,594.65 points, while France's CAC 40 managed gains of 0.48% to settle at 7,198.44.

Not all indices closed in the green, however, with London’s FTSE 100 ending the day down 0.06% at 7,257.82 points.

“European stock indices wiped out most of their early Monday morning gains as US investors turn towards Fed chair Jerome Powell's Friday speech at the Jackson Hole symposium, and await second quarter earnings by Zoom and Nvidia,” said IG senior market analyst Axel Rudolph.

“The People's Bank of China's underwhelming 10-basis point interest rate cut of its one-year loan prime rate to 3.45% did little to investor confidence, with US long-dated yields rising to levels last seen in 2008 and the greenback sticking to its upward trajectory.”

Surprise move by People’s Bank of China with modest rate cut

On the economic front, the People’s Bank of China (PBoC) unveiled a rate cut that caught market watchers off guard due to its modesty earlier.

The central bank opted for a 10 basis point reduction in the one-year loan prime rate, bringing it down to 3.45%.

That deviated from broad market expectations for a more significant 15 basis point adjustment.

Adding to the element of surprise, the five-year loan prime rate, which has a direct impact on mortgage pricing, remained untouched at 4.20%.

The static stance by the PBoC, especially in the wake of the medium-term loan rate cut just last week, diverged from analysts' predictions who had been forecasting an equivalent 15 basis point cut.

“The underwhelming LPR announcement strengthens our view that the PBoC is unlikely to embrace the much larger rate cuts that would be required to revive credit demand,” said analysts at Capital Economics.

“Hopes for a stimulus-led turnaround in economic activity largely depend on the prospect of greater fiscal support.”

Energy stocks rise amid tightened supply, housebuilders slide on market pressures

In equity markets, energy stocks stood out as lower exports from prominent oil producers Saudi Arabia and Russia created a tighter supply environment.

Leading the way was TotalEnergies, rising 1.02% in Paris, while in London BP managed a 1.03% gain and Shell climbed 0.38%.

Elsewhere, pharmaceutical giant Novo Nordisk rose 0.8% after Morgan Stanley revised its target price for the firm upwards.

On the downside, Dutch digital payments specialist Adyen slid 8.6%, coming on the heels of missed earnings estimates, further exacerbated by downgrades from two separate brokerages.

The UK housing sector was also in focus, with Crest Nicholson Holdings facing a sharp decline of 10.6% after releasing a revised and notably reduced annual profit forecast.

It cited a deteriorating housing market, compounded by rising inflation and interest rates, as the primary drivers for the adjustment.

Initially expecting £73m, the revised forecast now sat at approximately £50m.

However, Crest Nicholson also provided a silver lining, projecting a potential reduction in interest and inflation rates in the medium-term outlook.

Other housebuilders felt the pinch in tandem, with Taylor Wimpey down 4.17%, Persimmon by 3.44%, Barratt Developments by 2.47%, Berkeley Group Holdings by 3.08%, and Redrow by 4.68%.

“The Bank of England’s aggressive stream of rate hikes that have made it considerably more expensive to borrow are taking the heat out of the market, forcing buyers to respond to weaker demand by lowering their asking prices,” said Interactive Investor head of investment Victoria Scholar earlier.

“Many would-be sellers are choosing not to list their properties at all, given the increased difficulty in achieving their desired selling prices.

“Stagnation in the housing market is prompting more individuals and families to turn to the letting market instead, pushing rents sharply higher.”

Reporting by Josh White for Sharecast.com.