Europe holds steady, China launches bond sale

Europe maintains stability while China launches a significant bond sale.

By Ahmed Azzam | @3zzamous | 13 May 2024

Market close
  • European stock markets remain stable amid record highs, awaiting key US data.

  • US plans to increase tariffs on Chinese industries.

  • China launches first tranche of ultra-long sovereign bond sale, totaling $138 billion.

European stock markets showed little movement at the start of the week, with both the STOXX 50 and the STOXX 600 trading flat to marginally lower. This comes after the indices reached record levels and recorded gains of over 3% last week. Investors, having enjoyed a fruitful period, now take a pause, eagerly anticipating key US inflation data scheduled for release this week, alongside first-quarter GDP and employment figures for the Euro Area.

The euro strengthened, surpassing the $1.077 mark and edging closer to a five-week high. Market analysts anticipate the European Central Bank (ECB) to initiate interest rate cuts in June, juxtaposed with the Federal Reserve's anticipated move, expected in September or thereafter. Projections suggest the ECB may decrease rates by approximately 70 basis points, while the Fed could opt for a more conservative reduction of less than 45 basis points within the year. In contrast, the Bank of England opted to maintain its current interest rates in May but hinted at the possibility of a reduction later in the summer.

US-China trade dynamics

In a significant development in the ongoing US-China trade saga, sources familiar with the matter revealed that President Joe Biden intends to quadruple tariffs on Chinese electric vehicles (EVs) and implement substantial tariff hikes across other pivotal industries. Notably, solar manufacturing equipment remains exempt from the proposed tariff increments. However, analysts view this plan primarily as a symbolic gesture, given China's limited reliance on US consumers for the targeted sectors.

Meanwhile, China is set to kick off the sale of the initial tranche of its ultra-long special sovereign bonds, totaling 1 trillion yuan ($138 billion). The issuance, commencing with 30-year debt, is strategically timed to potentially mitigate the impact of tariffs being contemplated by the US.

China's bond sale

The Ministry of Finance of the People's Republic of China announced the imminent launch of the first installment of a substantial issuance of ultra-long special sovereign bonds. The issuance, totaling 1 trillion yuan, will be dispersed across various tenors spanning from 20 to 50 years.

According to the ministry's detailed plan, the sale of 30-year bonds will occur in twelve tranches from May 17 to November 15, while the issuance of 20-year bonds will commence in seven phases starting May 24. Additionally, 50-year bonds are slated for issuance in three parts, with sales beginning on May 17.

Premier Li Qiang underscored the pivotal role of these bonds in supporting the implementation of major national strategies and bolstering security capabilities in critical sectors, as highlighted by state media reports.