European markets may face pressure following weak Chinese data

After ending last week on a negative note, European stock markets are expected to remain under pressure following disappointing Chinese retail sales figures released on Monday. Retail sales in China grew by just 3% year-on-year in November, marking the slowest pace in three months and falling well short of economists’ expectations of a 5% increase.

This data has dampened sentiment in Asian stock markets and is likely to continue exerting downward pressure on European markets on Monday, particularly in the consumer stocks sector. 

European markets under pressure

Optimism in European markets earlier last week, driven by China’s pledge to adopt “a proactive fiscal policy and a more moderately loose monetary policy” in the new year, has since waned. The weak Chinese retail and trade data, coupled with lower-than-expected inflation figures, have dampened investor sentiment.

Growth-sensitive sectors, including luxury consumer goods, mining, and energy stocks, are particularly vulnerable. Shares of leading luxury brands such as LVMH, Hermès, and Kering rallied early last week on hopes of Chinese stimulus but erased those gains, closing the week flat.

In the energy sector, TotalEnergies saw its shares decline for a fourth consecutive day on Friday, following a brief rally on Monday. The French oil and gas producer’s stock hit its lowest level since August 2023, with political instability adding to the bearish sentiment.

European mining stocks also faced sharp selloffs after a short-lived rally. Australia-based BHP, which is dual-listed on the London Stock Exchange, fell more than 4% from its weekly high, reflecting the broader downturn in the sector.

China’s economy on a fragile recovery trajectory

China’s consumer spending enjoyed a brief surge in October, driven by the Singles’ Day sales event. However, the slowdown in retail sales growth reflects persistent challenges for the world’s second-largest economy, despite Beijing’s ongoing stimulus efforts.

Other economic data for November presented a mixed picture. Industrial output rose 5.4% year-on-year, maintaining the pace of October, while fixed asset investment increased by 3.3% for the first 11 months of the year, slightly below October’s 3.4% growth.

Trade data further highlighted headwinds, with exports rising 6.7% year-on-year and imports falling 3.9%. Both figures were significantly below economists’ forecasts of 8.7% growth and a 0.9% increase, respectively. Meanwhile, the consumer price index (CPI) eased to 0.2%, the slowest pace since June, underscoring subdued domestic demand.

On a more positive note, the decline in Chinese housing prices moderated for the third consecutive month in November. New-home sales prices fell by 0.2% compared to the previous month, the softest decrease in 17 months. This improvement reflects the impact of the government’s easing measures, including the People’s Bank of China’s outsized rate cuts in October, which pushed the 1-year and 5-year loan prime rates to record lows.

Despite this, some analysts believe that the Chinese economy may regain momentum in 2025 if the government materialise its stimulus pledge outlined in last week’s Political Bureau meeting. Dilin Wu, a research analyst at Pepperstone Australia wrote in an email: “If these policies are implemented effectively, I see a real opportunity for China’s consumer demand to rebound meaningfully by 2025, setting the stage for a more robust economic recovery.”