Market snapshot: bulls in the China shop

US markets continued their momentum and edged higher, propelling the S&P500 and Dow Jones to new closing highs, with the tailwind from China providing an additional boost.

Some of the gains were trimmed by a disappointing consumer confidence reading, which fell by the most in a month for over three years. The index fell to 98.7 for September from 105.6 in August and well below estimates for a reading of 104. The unexpected decline was largely driven by concerns over the health of the labour market and, given the importance of the consumer to the fortunes of economic growth, the market initially teetered on the news.

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However, there were other factors at play which kept each of the main indices in positive territory. Having suffered something of a summer lull, NVIDIA Corp (NASDAQ:NVDA) shares have more recently returned to market darling status and the shares rose by 4%, bringing the cumulative year to date performance to a stellar rise of some 150%.

In addition, the news from China that the authorities were finally awake to the need for stimulus also washed through, propelling US-listed shares of companies such as Alibaba Group Holding Ltd ADR (NYSE:BABA) and JD.com Inc ADR (NASDAQ:JD) by almost 8% and 14% respectively.

Apart from the consumer confidence reading, further tests are due this week from jobless claims and inflation numbers, while investors are also aware that despite the Federal Reserve’s aggressive interest rate cut last week, the true effects will take some time to wash through to the real economy.

Even so, there are a number of boxes being ticked at present which support both economic activity and corporate profits, which have underpinned the market rises. In the year to date, the Dow Jones has added 12% and the S&P500 20%, while the Nasdaq is ahead by 20.4%, just over 3% away from its own record high which was set in July.

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China remained the star of the show across Asian markets, with the People’s Bank of China announcing a further cut to medium-term lending rates to add to the raft of stimulus measures it had revealed the previous day. Taken in tandem, the measures represent the largest set of stimulus since the pandemic, with the stock market and the beleaguered property sector in particular focus. The general wave of positive sentiment also lifted commodity prices, with oil and copper particular beneficiaries, while the currency also strengthened.

Of course, the measures will also come with a time lag before any benefits can be seen in the real economy, but the fact that the authorities have at last responded to a growing clamour from investors for economic support has been warmly received. Chinese markets generally added another 2% in the trading session, adding to the 4% gains from the previous day when the shock announcements caught the attention of investors who had, for the most part, been seeking opportunities in other markets across the region, such as Japan.

However, the FTSE100 did not follow suit, weighed by some further sterling strength which is a headwind for the premier index and also perhaps by a more circumspect view of the Chinese stimulative measures after a positive reaction in the previous trading session.

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Mining stocks were for the most part unmoved by the further cut from the Chinese authorities, while Prudential (LSE:PRU) gave up most of its previous gains. Rightmove (LSE:RMV) edged lower after rejecting Australian REA Group’s takeover offer for the third time, while Diageo (LSE:DGE) saw red after a broker downgrade which weighed on the share price which has now lost 12% this year and 19% over the last 12 months.

Three broker upgrades lifted easyJet (LSE:EZJ) towards the top of the leader board, with one particularly bullish note suggesting a target price of £8 compared to the current trading level of around £5.20. Overall, however, there was a lack of conviction which weighed not only on the premier index, which is now ahead by 6.8% so far this year, but also on the FTSE250, which is seeing some weakness following the generally negative narrative leading up to the UK Budget next month.