European and Asian stocks subdued after China cuts key loan rate

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European stocks fell on Tuesday after China’s central bank unexpectedly cut the rate on its one-year loans in a move to shore up the country’s stagnant economy.

Europe’s region-wide Stoxx 600 fell 0.8 per cent after rising in the previous session, while France’s Cac 40 lost 1 per cent and Germany’s Dax declined 0.8 per cent.

Investors were digesting an unexpected move by the People’s Bank of China to cut its one-year medium-term lending facility rate, which affects loans to financial institutions.

The cut, by 0.15 percentage points to 2.5 per cent, took the rate to its lowest level since it was launched in 2014. The overwhelming majority of the market expected rates to remain unchanged.

The surprise policy move came after new data in China pointed to weak consumer and business activity in July, adding to a growing pool of evidence that the world’s second-largest economy was struggling to recover from three years of severe Covid-19 lockdowns.

A series of gloomy data releases last week indicated the country had slipped into deflation and added to calls for further economic stimulus from Beijing.

The Chinese renminbi declined 0.3 per cent against the dollar to trade at 7.2838, its weakest level since November.

China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 0.2 per cent, while Hong Kong’s Hang Seng declined 1 per cent, as downbeat data continued to weigh on investor sentiment.

London’s FTSE 100 was the biggest faller in Europe, down 1.2 per cent, after data on Tuesday showed UK wage growth hit a record annual pace in the three months to June, adding to signs of persistent inflationary pressures in the country.

Yields on two-year UK gilts rose 0.08 percentage points to 5.15 per cent, their highest level in a month. Yields on 10-year gilts rose 0.06 percentage points to 4.62 per cent. Bond yields rise when prices fall.

The Bank of England will pay close attention to official UK inflation figures coming out on Wednesday, having so far struggled to keep up with its peers in the US and Europe in the global campaign to cool prices. Sterling rose 0.1 per cent against the dollar to $1.2689.

Meanwhile, futures contracts tracking Wall Street’s S&P 500 fell 0.5 per cent and those tracking the tech-focused Nasdaq 100 declined 0.4 per cent ahead of the New York opening bell.

Investors will be closely watching US retail sales growth figures for July, which economists expect to come in at 0.4 per cent, up from 0.2 per cent in the previous month.

Consumer goods giant Home Depot is also set to report second-quarter earnings later in the day, offering additional insight into the mood of American consumers more than a year after the US Federal Reserve began its aggressive monetary tightening campaign. Retailer Target follows with earnings on Wednesday.