European shares hovered near two-month highs on Monday, as signs of a slowing Chinese economy prompted investors to turn to defensive sectors such as healthcare and consumer staples typically seen as immune to business cycles.
The pan-European STOXX 600 .STOXX rose 0.4% in morning trade. The benchmark index was trading close to levels needed to recoup all of its June losses when fears about aggressive U.S. interest rate hikes and recession dominated the sentiment.
Healthcare stocks .SXDP provided the biggest boost to European stocks on Monday. AstraZeneca AZN.L rose 2.4% after the drugmaker said its cancer drug, Enhertu, developed with Japan’s Daiichi Sankyo 4568.T delayed the progression of a form of advanced breast cancer in previously treated patients.
Food and beverage .SX3P and utilities .SX6P rose about 0.7% each to lead morning gains.
Those gains helped counter losses in China-exposed automakers .SXAP and miners .SXPP after the country’s central bank cut key lending rates in a surprise move to revive demand as data showed the economy unexpectedly slowing in July.
“Initially, it is seen as encouraging the economy, but if you’re cutting rates it can also be seen as admitting your economy needs help,” said David Madden, market analyst at Equiti Capital at London.
“Retail sales, fixed asset investments and also industrial production, they’re all caving in and the expectation is just kind of confirming the idea that their economy is coming off the boil.”
European stock markets have rallied off their June lows, echoing an upbeat sentiment on Wall Street, as signs that U.S. inflation may have peaked encouraged investors to scale back bets of aggressive rate hikes by the Federal Reserve.
Meanwhile, German wholesale prices fell by 0.4% in July compared with the previous month, the first decline since Oct. 2020, the Federal Statistical Office reported, driven in part by cheaper prices of grain, raw tobacco, seeds and feedstuffs.
The STOXX has climbed over 10% since hitting a year low in June, but remains down 9.3% for the year.
Among other stocks, HelloFresh HFGG.DE jumped 8% after the German meal-kit maker confirmed its mid-term targets and said it was “cautiously optimistic” about the second half of the year.
Henkel HNKG_p.DE slipped 0.1% as the German consumer goods group said the surging cost of materials hit earnings in the first half of the year.