Europe midday: Stocks drop as Chinese stimulus measures underwhelm

(Sharecast News) - European stocks were firmly lower by Friday lunchtime as a package of stimulus measures from China underwhelmed investors following a tumultuous week for global financial markets. Just before 1300 CET, the Stoxx 600 was down 0.6% at 506.84, with falls of 0.8-0.9% seen across London, Frankfurt and Paris.

European equities have been volatile in the aftermath of Donald Trump's election victory on Tuesday evening as investors assessed the potential ramifications of his proposed import tariffs on international trade.

Interest-rate cuts in Sweden, the UK and US on Thursday were also giving market participants pause for thought, with the future path of monetary policy now clouded by rising inflationary risks and renewed economic pressures.

Meanwhile, China unveiled its latest stimulus package on Friday, as it looked to tackle surging levels of local government debt and revive the country's flagging economy. Following a week-long meeting, Beijing approved a Rm10trn (£1.1bn) plan to help heavily-indebted local governments refinance. The funds will go towards reducing off-balance, or hidden, debts.

"There is a risk-off tone to markets today, bond yields are lower across the board and oil and some industrial metals are also lower today," said Kathleen Brooks, research director at XTB.

"The problem with China's stimulus measures is that they are not stimulus. They are essentially a debt swap to shore up local government's finances. The market reaction shows that traders do not see these measures as boosting consumption, and instead they are designed to stop a financial crisis domestically in China."

Back in Europe, the economic data schedule for Friday looked relatively quiet, with Swedish and Italian industrial output figures for September and French trade statistics the only major releases of the day.

Market movers

London's heavyweight mining sector was providing a drag as Chinese stimulus measures disappointed, with Anglo American, Antofagasta, Glencore and Rio Tinto all out of favour.

Richemont shares were after the Swiss luxury accessories group said weak consumer spending in China led to a 1% fall in second-quarter sales, missing analysts' estimates. Others in the sector such as Burberry, Swatch Group and Kering also fell.

Polish retailer Dino Polska was the standout performer on the Stoxx 600, rising 11% after beating forecasts with its third-quarter results, which saw double-digit growth in both sales and gross profits.

Spanish and London-listed airline IAG also jumped 7% after beating analysts' forecasts for top-line growth in the third quarter and delivering strong guidance, as it unveiled a €350m share buyback plan.

Heading the other way was Vistry, which dropped nearly 20% after the UK housebuilder warned on full-year profits again, cutting its forecast for completions and highlighting issues at its South Division.

Serco fell 10% after revealing it had lost a £165m-a-year long-running Australian immigration detention centres contract, and estimating that changes to employer national insurance contributions will increase labour costs by £20m a year.

In a similar vein, Greggs was down 7% after Deutsche Bank cut its rating on the British bakery chain from 'hold' to 'sell' due to the changes in NI obligations.