European stocks climb as global markets look for rebound; Stoxx 600 up 1%

LONDON — European stocks advanced on Friday as global markets looked to regain some ground after a bruising week, with investors assessing the outlook for inflation and interest rates.

The pan-European Stoxx 600 added 1% in early trade, with banks climbing 1.9% to lead gains as all sectors and major bourses entered positive territory.

European markets fell on Thursday as investors remained concerned about slowing growth, interest rate hikes and red-hot April inflation data from the United States, which sparked concerns that a path of aggressive interest rate hiking lies ahead.

US Federal Reserve Chairman Jerome Powell said Thursday that he could not guarantee a so-called “soft landing” that tempers inflation without pushing the economy into recession.

Global stocks have endured a rollercoaster week but look set to regain some ground on Friday. Shares in Asia-Pacific advanced by mid-afternoon with Japan’s Nikkei 225 leading the way on a 2.6% climb.

Meanwhile, US stock futures were higher in early premarket trade as investors hope the S&P 500 can avoid sliding into bear market territory, with the index closing down more than 18% from its all-time high on Thursday, just 2% shy of an official bear market.

The tech-heavy Nasdaq is already in a bear market, closing Thursday down more than 29% from its all-time high, while the Dow Jones Industrial Average has failed for six consecutive trading sessions.

The Stoxx 600 in Europe began Friday’s session down 13% since the beginning of the year.

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Investors are also monitoring the geopolitical fallout from the war in Ukraine. Russia on Thursday threatened retaliation against Finland after Finnish leaders said the northern European nation must apply to join NATO “without delay.”

European leaders are also facing a race to secure alternative gas suppliers after Moscow announced sanctions on European subsidiaries of its majority state-owned corporation Gazprom. The move came after Ukraine’s state-owned grid operator suspended Russian flows into Europe through a key entry point.

On the data front, French inflation was confirmed at an annual 5.4% in April.

Euro area industrial production readings for March are due on Friday morning.

In terms of individual share price movement, British investment company Bridgepoint Group jumped more than 10% following its annual general meeting, while Finnish state-owned energy company Fortum climbed 9.9% in early trade.

Shares of Belgian pharmaceutical company UCB fell 13% after the US Food and Drug Administration said it cannot approve a key psoriasis drug.

Swedish industrial company Atlas Copco dropped 75% due to recalculation after a share split which came into effect on Friday, whereby one share was replaced by four new ordinary shares and one redemption share.

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China may chalk up more debt as lockdowns hit the economy

Covid lockdowns have hit China’s economy, and the Asian giant might have to issue more debt to continue meeting its growth target.

Kevin Frayer | Getty ImagesNews | Getty Images

China may have to issue more debt as it tries to keep growing in the face of Covid lockdowns that are stunting its economy.

The country has signaled in recent weeks that it still wants to meet its growth target of 5.5% this year.

China’s Politburo meeting on April 29 sent a “strong signal that policymakers are committed to this year’s GDP target despite downside risks from COVID-19 disruptions and geopolitical tensions,” ANZ Research analysts wrote in a note on the same day.

To attain the 5.5% target, China may be borrowing from the future and incur more debt.

Chinese state media on Friday reported details of that Politburo meeting, in which officials promised more support for the economy to meet the country’s economic growth target for the year. That support would include infrastructure investment, tax cuts and rebates, measures to increase consumption, and other relief measures for companies.

That’s as foreign investment banks are predicting growth will fall significantly below the 5.5% number, with manufacturing activity slumping in April.

That means China is likely to rack up more debt as it tries to meet its growth targets, according to market watchers.

“To attain the 5.5% target, China may be borrowing from the future and incur more debt,” said ANZ Research’s senior China economist, Betty Wang, and senior China strategist, Zhaopeng Xing.

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Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs, told CNBC last week that China is set to ramp up infrastructure spending.

From Beijing’s point of view, increasing such fiscal spending as well as relaxing debt restrictions would be more desirable than monetary easing, he told CNBC’s “Squawk Box Asia.”

However, one hindrance to the government’s efforts toward infrastructure investment would be the Covid-related restrictions that are indiscriminately being imposed everywhere, Tilton said.

“There are a lot of restrictions around the country even in some cases in places where there aren’t any Covid cases — more precautionary in nature,” he said. “So one of the obstacles to the infrastructure campaign is going to be keeping Covid restrictions targeted on just the areas where they’re most needed.”

One option for the government is to issue so-called local government special bonds, Tilton said.

Those are bonds that are issued by units set up by local and regional governments to fund public infrastructure projects.

In the beleaguered real estate market, the government has also been encouraging lenders to support developers, Tilton said.

Borrowing more to boost growth would be a step backward for Beijing, which has been trying to cut debt before the pandemic even began. The government has targeted the property sector aggressively by rolling out the “three red lines” policy, which is aimed at reining in developers after years of growth fueled by excessive debt. The policy places a limit on debt in relation to a firm’s cash flows, assets and capital levels.

However, that led to a debt crisis late last year as Evergrande and other developers started to default on their debt.

Shocks to business, GDP forecasts

Chinese President Xi Jinping last week called for an “all-out” effort to construct infrastructure, with the country struggling to keep its economy humming since the country’s most recent Covid outbreak began around two months ago.

Restrictions have been imposed in its two largest cities, Beijing and Shanghai, with stay-home orders slapped on millions of people and establishments shut down.

China’s zero-Covid restrictions have hit businesses hard. Nearly 60% of European businesses in the country said they were cutting 2022 revenue projections as a result of Covid controls, according to a survey late last month by the EU Chamber of Commerce in China.

Among Chinese businesses, monthly surveys released in the last week showed sentiment among manufacturing and service businesses fell in April to the lowest since the initial shock of the pandemic in February 2020.

The Caixin services Purchasing Managers’ Index, a private survey which measures China’s manufacturing activity, showed a drop to 36.2 in April, according to data out last Thursday. That’s far below the 50-point mark that separates growth from contraction.

The country’s zero-Covid policy and slowing economy have already sparked predictions from investment banks and other analysts that its growth will fall significantly below its target of 5.5% this year.

Forecasts are ranging from more than 3% to around 4.5%.

“Given the Covid outbreaks’ impact on consumption and industrial output in the first half of 2022, we expect 2022 GDP growth closer to 4.3%, assuming the economy can begin to recover before June, and then rebound,” said Swiss private bank Lombard Odier’s Chief Investment Officer Stephane Monier.

“If the economy continues to suffer from successive lockdown shocks for key urban areas, full-year growth would certainly fall below 4%,” he wrote in a Wednesday note.

— CNBC’s Evelyn Cheng contributed to this report.



China’s consumer prices climb as Covid prompts food stockpiling

Fresh vegetable prices rose by 24% year-on-year in April as consumers stocked up to prepare for potential stay-home orders. Pictured here is a delivery driver for Alibaba’s Hema Fresh supermarket in Beijing on May 10, 2022.

Jade Gao | Afp | Getty Images

BEIJING — China’s consumer and producer prices rose more than expected in April, according to data from the National Bureau of Statistics released Wednesday.

The consumer price index rose by 2.1% last month from a year ago, boosted by a surge in energy and fresh vegetable costs. The reading topped expectations for a 1.8% rise forecast by a Reuters poll.

April’s figure was also the highest since November’s 2.3% print and well above the 18-month average of 0.9% consumer price inflation. China’s official CPI target for 2022 is “around 3%.”

“The main driver was a pick up of food prices due to rising transportation costs and restocking demand from tighter Covid restrictions,” Goldman Sachs analysts said in a report Wednesday.

“In year-over-year terms, we expect CPI inflation to rise and PPI inflation to fall on base effects,” the report said. “Sequentially CPI inflation may moderate in the near term as the inflationary pressures from food prices might ease with the improved Covid situation in China.”

Since March, mainland China has tightened travel restrictions and imposed stay-home orders in many parts of cities to contain the country’s worst Covid outbreak since early 2020. The controls have prevented many factories from producing at full capacity or moving goods between suppliers and customers.

Fresh vegetable prices rose by 24% year-on-year in April, while fresh fruit prices increased by 14.1% during that time. Pork prices, a major contributor to China’s CPI, posted a relatively rare 1.5% increase from the prior month for a more moderate year-on-year drop of 33.3%.

Fuel prices for transportation climbed by 28.4% from a year earlier, reflecting recent surges in oil and commodity prices.

Sluggish consumer demand

However, China’s rising consumer price index doesn’t mean locals face the same pressure that Americans do.

US consumer prices have arisen by their most since the early 1980s, even when stripping out food and energy. The April figure due out later on Wednesday is forecast to remain near the decades-high increase of 8.5% seen in March.

In China, excluding food and energy prices, the consumer price index rose by a muted 0.9% in April from a year ago.

Longer-term, analysts warn that overall consumer demand in China remains depressed due to uncertainty about future income.

Some businesses have even cut prices to attract buyers.

The Caixin Services PMI for April — a monthly sentiment survey — found that businesses cut prices at the fastest pace since May 2020, “with a number of firms lowering their fees in order to attract new business amid muted demand conditions,” a release said.

A similar survey of manufacturers found that despite a sharp rise in the cost of production, selling prices increased only modestly as firms tried to remain competitive and attract new business.

Factory costs remain high

In April, China’s producer price index moderated for a fourth-straight month, rising 8% year-on-year. That was still above Reuters’ forecast for a 7.7% increase.

Within PPI, purchase prices rose far more quickly than so-called factory gate prices — the price of goods sold from factories for further manufacturing or sale to distributors.

That’s an indication that cost pressures are unevenly distributed across industries, said Bruce Pang, head of macro and strategy research at China Renaissance.

He said that means different businesses will face different kinds of impact on their profit margins.

There’s an “urgent need” for monetary and fiscal policy to provide targeted support for companies seriously affected by the pandemic, Pang said in Chinese, translated by CNBC.

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China’s central bank and other authorities have announced a number of measures to support growth in the last few weeks, although the scale of those measures has generally disappointed markets.

“The Covid lockdowns have eroded the effectiveness of policy easing, and mutated demand more than supply,” Morgan Stanley’s Chief China Economist Robin Xing and a team said in a note Tuesday.

In late April, the firm cut its GDP target for China to 4.2% based on expectations that Covid controls will disrupt supply chains will last longer. That’s down from the prior forecast of 4.6%.



Biden says White House could drop Trump China tariffs to lower consumer prices

President Joe Biden said he could drop some of the tariffs imposed against Chinese imports to help control rising consumer prices in the US — just as Wall Street braces for another inflation report north of 8%.

The White House is reviewing the penalties imposed under former President Donald Trump — which raised prices on everything from diapers to clothing and furniture — and could opt to remove them altogether, Biden said in addressing the nation from Washington on Tuesday.

“We’re looking at what would have the most positive impact,” Biden said, adding that removing the tariffs was currently under discussion.

Trump levied a raft of financial penalties on Chinese goods in a long-running tit-for-tat trade war with Beijing in an effort to bolster American-made goods.

The extent to which removing Trump’s taxes on Chinese products would cool inflation is a matter of debate among economists, but many say easing or removing the tariffs altogether is among the few options available to a White House eager to pull every lever available to ease costs.

The president reiterated that a combination of Covid-19 protocols at home and abroad and Russian President Vladimir Putin’s invasion of Ukraine has caused prices in the US to jump at their fastest pace since the early 1980s.

“I want every American to know that I am taking inflation very seriously,” Biden said. “The first cause of inflation is a once-in-a-century pandemic. Not only did it shut down our global economy, it threw supply chains and demand completely out of whack.”

“And this year we have a second cause: Mr. Putin’s war in Ukraine,” he added, referring to the dramatic rise in oil prices sparked by Moscow’s attack earlier in 2022.

While West Texas crude futures are well off highs of over $130 a barrel seen in March, oil contracts for June delivery were last seen trading around $100, about $30 above where they began the year.

The president noted that the war has also driven up the prices of contracts for key food products such as wheat and corn, which are up 40% and 30%, respectively, in 2022. Russia and Ukraine together supply more than a quarter of the world’s wheat.

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Economists say the combination of the pandemic — especially China’s recent, and severe, efforts to curb rising cases there — and the war in Ukraine are both to blame for inflation’s 8.5% rise over the last year through March, the highest reading since 1981. Wall Street is eager to read the Labor Department’s upcoming report on April inflation, which is scheduled for release at 8:30 am ET Wednesday.

Economists polled by Dow Jones expect that report to show inflation rose 8.1% in the 12 months ending in April.

Biden’s comments the day before the release is the administration’s latest attempt to convince the American public that the White House is exploring all options available to quell rising prices. Dozens of polls have indicated that Americans now believe inflation is the chief issue facing the US and a threat to the economic recovery from the Covid recession.

While some economic measures have staged remarkable rebounds — the US employment rate held steady at a low 3.6% last month — higher gas and grocery bills continue to erode paychecks and spark angst across the country.

Biden has in recent weeks sought to pacify those frustrations through regular speeches.

Last week, he touted sizable reductions in the federal deficit this fiscal year as a key departure from what he characterized as rampant spending by his Republican predecessor and a step toward fiscal responsibility and lower prices.

Republicans argue that the rash of inflation is, in large part, thanks to the Democrats’ ambitious economic policies, including trillions in Covid relief in the American Rescue Plan as well as the bipartisan infrastructure law Biden signed in 2021.

The GOP also points out that federal spending might have been higher, and the expected deficit larger, if Biden and his Democratic colleagues had managed to pass a suite of climate, housing and workforce legislation once known as the Build Back Better plan.

Those attacks pose a political problem for Democrats as they face an uphill battle to retain control of Congress in November’s key midterm elections. The Senate is split 50-50 between Democrats and Republicans, while the House is divided 221-209 in favor of Democrats.

Biden in his recent comments has countered Republican barbs by trumpeting the administration’s efforts to lower prescription drug costs and to raise taxes on only the richest Americans.

“What’s the congressional Republican plan? They don’t want to solve inflation by lowering your costs. They want to solve it by raising your taxes and lowering your income,” Biden said Tuesday. “Their plan is actually going to make working families poorer.”