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European stocks start 2020 on the up after Chinese stimulus

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
An investor looks at his mobile phone in front of a board showing stock information at a brokerage office in Beijing, China January 2, 2020. REUTERS/Jason Lee
China's central bank freed up an estimated £86bn to boost growth after cutting the reserve requirement ratio for local banks. Photo: Jason Lee/Reuters

European stocks rose on the first day of trading in 2020, boosted by economic stimulus in China.

China’s central bank announced Wednesday it was cutting the reserve requirement ratio for commercial banks in the country.

The cut — the fourth in the last 12 months — means banks will have to hold less cash on hand for emergencies. The move frees up an estimated 800bn yuan ($115bn, £86.9bn) to invest in China’s economy, the People’s Bank of China said in a statement.

Stock markets around the world were closed on Wednesday for New Year’s Day and many traders had their first chance to react to the news on Thursday.

Stocks rose broadly across Europe. The CAC 40 (^FCHI) in France was the best performing major index on the continent, up 0.8% by 9am. The FTSE 100 (^FTSE) in London wasn’t far behind, up 0.7% to 7,599, and the DAX (^GDAXI) was up 0.2%.

Industrial companies enjoyed big gains, due to China’s traditional heavy reliance on manufacturing and construction. Bouygues (EN.PA) rose 1.2% in Paris, Thyssenkrupp (TKA.DE) climbed 2.5% in Frankfurt, and Glencore (GLEN.L) topped the FTSE 100 in London with a gain of 2.6%.

READ MORE: UK economy 'limped through' end of 2019, survey shows

China is the second biggest economy in the world and so any potential boost to local growth should have a ripple effect on other economies around the world. Analysts said this was behind the sharp rise in global stock prices on Thursday.

“China kicked off 2020 with a belated Christmas present for the markets, the effects of which were still being felt on Thursday,” said Connor Campbell, a financial analyst at trading platform SpreadEx.

As well as the Chinese stimulus, the FTSE 100 was boosted by a falling pound. Around 70% of earnings made by FTSE 100 companies are booked in dollars, meaning a weak pound benefits sterling-denominated share prices.

The pound was down 0.1% against the dollar (GBPUSD=X) to $1.3223 and down 0.1% against the euro (GBPEUR=X) to €1.1792. Campbell said sterling was “feeling the pressure now that we are less than one month away from leaving the EU.”

In France, the CAC 40’s outperformance was helped by a big rise for Airbus (AIR.PA). The aerospace giant rose 3.3% after Reuters said Airbus overtook Boeing to become the world’s biggest plane manufacturer for the first time since 2011.