Europe close: Speculation around Chinese stimulus lifts stocks

European stocks finished mostly higher on Friday, with indices close to record highs following an interest-rate cut in the previous session.

Investors were also contending with a barrage of economic indicators from China, where growth slowed slightly in the third quarter, as the country struggles with both weak consumer confidence and softer global demand.

"What’s boosted shares is China’s central bank talking about a plan to encourage non-bank financial institutions to invest in the stock market," said Russ Mould, investment director at AJ Bell.

The Stoxx 600 traded 0.21% higher to 524.99, just a handful of points away from its all-time closing high of 528.08 registered in late-September.

Markets in London were mixed but gains were recorded in Paris, Milan, Madrid and Frankfurt – with Germany's DAX coming within a whisker of setting a new record high.

Stocks rose on Thursday after the European Central Bank lowered its benchmark deposit rate to 3.25% from 3.5% as expected, and said the "disinflationary process is well on track". Comments made by the bank were dovish in tone, with market participants widely expecting further monetary easing at upcoming meetings to spur economic growth with inflation now well below the ECB's target of 2%.

In economic news, UK retail sales ticked 0.3% higher in September, beating expectations of a 0.3% decline, as consumers splashed out on technology, data from the Office for National Statistics showed on Friday. Growth was slower than the 1% improvement seen in August, but volumes were at their highest index levels since July 2022.

Meanwhile, construction output in the eurozone inched higher in August but remained well below last year's levels, according to figures from Eurostat on Friday. Production in construction increased by just 0.1% across the single-currency region during the month, following a 0.5% fall in July. However, when compared with August last year, output declined by 2.5%, registering the seventh straight month of annual declines.

Eyes on China

Over in China, the National Bureau of Statistics said that GDP grew by 4.6% in the three months to September end, down on the second quarter’s 4.7% rise, falling further from Beijing’s full-year target of around 5%. However, the reading did narrowly beat forecasts, for growth of 4.5%.

The NBS also said on Friday that retail sales had risen 3.2% year-on-year in September, an above-forecast improvement on August’s 2.1% increase, while industrial production strengthened 5.4%, up from 4.5%.

However, according to Betty Wang, lead economist at Oxford Economics, concerns about a "structural downturn" in China haven't yet subsided. "We would downplay the importance of better-than-expected key economic indicators in September given that the structural weakness in the property and household sectors remains largely unaddressed," Wang said.

Other data on Friday showed that the Chinese house price index slid 5.7% year-on-year, compounding the previous month’s fall of -5.3%. It was also the fastest pace of decline since May 2015. The crisis in China’s once red-hot property sector – which at its height accounted for a quarter of the country’s economic activity – is one of the biggest drags on growth.

Market movers

Mining stocks were in favour in London, such as Antofagasta, Glencore, Anglo American, Rio Tinto and Fresnillo, on the back of improving data from China.

Luxury stocks across the continent were also performing well after the Chinese data, including Burberry, Hermes, LVMH and Kering.

Brunello Cucinelli was also higher in Milan after beating forecasts with a 9% increase in third-quarter revenue on the back of strong sales of its fall and winter collections.

Swedish automaker Volvo was also on the up, despite pointing to flat truck and construction equipment markets next year due to "some uncertainty about the macroeconomic development in the near term". The outlook came as third-quarter sales fell 12% to SEK117bn, missing the SEK121bn consensus forecast.