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Europe close: Shares close higher as investors ignore weak survey data

By Frank Prenesti

Date: Thursday 23 Sep 2021

Europe close: Shares close higher as investors ignore weak survey data

(Sharecast News) - European stocks closed higher on Thursday as investors shrugged off a survey showing a marked slowdown in Eurozone business growth during September, fears of a debt default by struggling property developer China Evergrande and rising inflation.
The pan-European Stoxx 600 index closed 0.93% higher at 467.50. The UK's FTSE closed 0.7% lower as the Bank of England warned that UK inflation would rise above 4% by the end of this year, due to the energy price shock with soaring gas prices an 'upside risk' to previous inflation projections.

Stocks made a brisk start on the back of a rise in Hong Kong shares driven by a 30% spike in Evergrande as worries over the property developer's debt eased.

In the euro zone, a survey showed business growth slowed markedly in September as demand peaked and supply chain problems affected production and deliveries.

IHS Markit's flash composite output purchasing managers' index dropped to 56.1 from 59 a month earlier. The reading was a five-month low and fell short of analysts' average forecast of 58.5.

Slowing growth was led by manufacturing where output dropped to an eight-month low of 56.1 while services slipped to 56.3 - the lowest score since May. Supply chain constraints hit manufacturing and delivery times for some service businesses. Continuing concerns about the pandemic were blamed for subdued demand growth.

"To all intents and purposes it looks like the 'Evergrande Debt Panic' of September 2021 is at an end. US markets are now above where they opened on Monday, and are doing a good job of eating into the losses suffered last Friday too," said IG analyst Chris Beauchamp.

"Meanwhile in Europe the buying continues ... after such a promising start, the bears have fumbled the ball once again, and with astonishing ruthlessness the buyers have picked it up and run away with it."

"The rebound in stocks over the past three days points towards a renewed bullish outlook for global equities. Crucially it looks like the worsening expectations around global growth will mean that investors do not expect too much good news heading into the next set of earnings, which of course allows for the possibility of outperformance. The equity rally seems to have further room to run as we prepare to move into Q4."

In the UK, the Bank of England's Monetary Policy Committee voted 9-0 to leave the base rate at 0.1% and decided to maintain its quantitative easing bond-buying programme at £895bn.

However deputy governor Dave Ramsden and external member Michael Saunders voted to stop QE early, by reducing the amount of UK government bonds the bank buys to £840bn from £875bn.

Policymakers said inflation could remain above 4% into the second quarter of next year, intensifying the cost of living squeeze facing UK households.

In equity news, Evergrande chairman Hui Ka Yan moved to reassure investors after the company's unit said it had "resolved" a coupon payment on an onshore bond. He said the company, saddled with more than $300bn in debt, would make it a top priority to help retail investors redeem their investment products.

The company faces $83.5m in dollar-bond interest payments due Thursday on a $2bn offshore bond. A $47.5m -bond interest payment is also due next week.

UK parcel and letter carrier Royal Mail gained after it forecast a surge in first-half operating profit as the pandemic-led boom in online shopping drives letter volumes and package revenues.

French car parts company Faurecia rose 6.69% even as it lowered its main 2021 financial targets due to a sharp reduction in worldwide automotive production. Rival Valeo also gained 8.39% to top the Stoxx.

Investec rallied as the wealth manager and banking group raised its earnings outlook driven by strong revenue growth and lower impairments.

Playtech gained after the gambling software developer reported a rise in first-half profit as it said a strong online performance helped to offset longer-than-expected retail closures in Italy.


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