5 things to start your day: Europe

Good morning. China's stunning stock rally continues. France mulls a new corporate tax. Car companies urge the European Union to stick with

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Good morning. China's stunning stock rally continues. France mulls a new corporate tax. Car companies urge the European Union to stick with plans to halt combustion-engine sales. Here's what people are talking about.

Historic rally

Chinese stocks extended one of their most remarkable turnarounds in history. The CSI 300 Index — which lost more than 45% of its value from a 2021 high through mid-September — jumped as much as 6.5% on Monday, the most since 2015. It's set for a technical bull market as traders rushed to buy shares in the last session before a week-long holiday. Iron ore led metals higher on the China optimism, marking a sharp contrast with falling Japanese stocks. Shigeru Ishiba's surprise victory in the ruling party's leadership race wrongfooted investors who had bet on a boost from more monetary stimulus from his rival. On the subject of contrarian bets to watch, Lombard Odier's chief investment officer Michael Strobaek is sticking with his decision to sell all of the firm's China stock and bond holdings. He said he doesn't think the stimulus "will have a lasting sustainable impact on either the stock market or the economy."

French tax weighed

The French government is weighing fresh taxes on corporates to cut the country's budget deficit, newspaper Le Monde reported. The finance ministry is considering an 8.5% temporary extra tax on companies with more than €1 billion in revenue, and a tax on stock buybacks equal to 8% of the nominal reduction in capital, according to documents cited by Le Monde. Personal income taxes would remain stable and there would be cuts to public spending, the daily said. Michel Barnier, the right-wing prime minister appointed earlier this month by Emmanuel Macron, will lay out his objectives in a policy speech to the parliament on Tuesday. He is readying the 2025 budget bill, which is expected be presented around Oct. 9.

US stocks

US stocks will outperform the nation's government and corporate bonds for the rest of this year as the Federal Reserve keeps cutting interest rates, the latest Bloomberg Markets Live Pulse survey shows. Exactly 60% of the 499 respondents said they expect US equities will deliver the best returns in the fourth quarter. Outside of the US, 59% said they prefer emerging markets to developed ones. And as they ramp up these bets, they're avoiding traditional ports of calm, such as Treasuries, the dollar and gold. It's a risk-on view that dovetails with bullish calls emerging on Wall Street following the Fed's half-point rate cut this month. China's biggest stock rally since 2008 after Xi Jinping's government ramped up economic stimulus also helped boost optimism.

Green doubts

It's wrong to expect that a cycle of interest-rate cuts from the Federal Reserve will suddenly revive the green transition, according to Barry Norris, the founder and chief investment officer of UK hedge fund Argonaut Capital Partners. "For the last few years, energy-transition insiders believed that the problems in the industry stemmed purely from high interest rates," Norris said. "Interest rates are now falling, so logically sentiment in this part of the market should be better. Instead, the insiders are going back to governments asking for more subsidies." It's a view that flies in the face of the conventional wisdom currently making the rounds across much of Wall Street, with analysts at Citigroup and Goldman Sachs Group among those declaring that a turning point has been reached for green stocks.

EV call

Volvo and dozens of industrial manufacturers urged Brussels to stick to a plan to halt sales of new combustion-engine cars starting 2035. But Europe's biggest automakers are keeping quiet. Fifty companies called on the EU to keep the policy, according to a declaration shared with Bloomberg News. They argued the sector needs certainty in order to invest and support to meet EU goals, but no backtracking. "The 2035 target is crucial to align all stakeholders on this journey and ensure European competitiveness," said Jim Rowan, Volvo's chief executive officer. The EU's emissions targets for cars have come under fire in recent months as manufacturers grapple with a slowdown in sales, particularly of electric models. For the first time, Volkswagen is considering shuttering factories, while the industry lobby warned of multibillion-euro fines for missing 2025 carbon goals.

Coming up

Coming up on the economic calendar, we expect UK September house prices and second quarter final GDP, UK August mortgage approvals and CPIs from Poland, Italy and Germany. Central bank speakers include the ECB's Lagarde, the BOE's Greene and the Fed's Bowman and Powell.

What we've been reading

This is what's caught our eye over the past 24 hours. Austrian Far Right wins vote but establishment set to govern Israel sees paralyzed Hezbollah as Lebanon fears what's next Tories turn on each other in race to succeed low-key Sunak Harvard endowment paid out a fortune and lost its investing edge US Eastern ports prepare to close with labor talks stalled An 88-year-old Japanese trader bets big in risk-averse nation The mavericks of metal are back, rocking a $15 trillion market

And finally, here's what Marcus is interested in this morning:

While headlines on stimulus out of China -- the euro zone's largest trading partner -- will help the euro at the margin, the weakening momentum in domestic growth and inflation is more pressing. That means further euro downside versus the dollar is likely, with inflation data from Germany and the whole region this week set to spur further dovish speculation for the ECB. Germany's preliminary September headline CPI rate is expected at 1.8%, which would be slowest pace since February 2021. If it comes to fruition, such a print could certainly feed into expectations for a similar direction for the euro zone inflation data due Tuesday. Expectations have risen for a dovish ECB decision in October, with OIS pricing a near 90% probability for 25bps cut, from just 40% a week ago. This chimes in with the more aggressive calls from European banks such as BNP Paribas and HSBC, with the latter now seeing rate cuts at every meeting between October and April. The growth equation is also important. While the market is dithering between a hard or soft landing in the US, there seems to be stronger consensus for slowing growth momentum in the euro zone. As such, EUR/USD will likely find it challenging to breach the July 18 high of 1.1276. Marcus Wong is a macro strategist for Bloomberg Markets based in Singapore.

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