European stocks lose ground as traders eye EU meeting China data weighs on miners

European stocks traded lower on Thursday, weighed down by weakness in mining stocks in reaction to poor data out of China, whilst most of the market was intensely focused on developments in Brussels for the European Summit.

It is the weaker-than-expected Chinese data that is weighing on the mining sector today, which in turn as a heavyweight sector is dragging down the FTSE 100. The Chinese factory sector contracted for the first time in a year whilst the pace of the contraction was also at its fastest point for two years. Chinese PMI slipped to 48.9 in July from 50.1 in June. Naturally this will raise concerns over near term metal demand within the broader context of the hawkish Chinese monetary policy. With the mining sector having gained 4% over the last two sessions, investors have been easily drawn into locking in their profits here as a result, particularly with the EU summit taking place today likely to influence the ‘risk on’ or ‘risk off’ environment. The mining sector was down by over 2% in London in the morning session.

All eyes on EU Summit
All eyes are firmly on today’s EU summit in Brussels as investors await the details of the second bailout for Greece and any impact on banks or the potential for a selective default. Rumours that an agreement between Germany and France over the bailout proposals may include a dropping of the banking tax have helped to rally banking stocks in the early part of the day. That rally quickly reversed however, as traders began to remove risk from their portfolios and positioned themselves for the EU summit ahead.

Comments from Dutch Finance Minister Jan Kees de Jager that France and Germany had agreed on the possibility of a selective default for Greece sent the euro in a bit of a spin, with the single currency losing nearly 0.5% against the dollar and 0.3% against the Swiss franc. With Jean-Claude Juncker claiming that everything should be done to avoid this situation however, this could be one of the more volatile issues discussed today.

Naturally we are likely to see some volatile price swings as traders react to all the Chinese whispers that may circulate as the meeting progresses and indeed we have already seen elements of this so far today.

The market’s reaction towards today’s summit is likely to be dictated by any confirmation of a bank tax, the degress and scale of involvement of the private sector, any consideration towards a selective default and the amount of details that remain left to be discussed after the meeting. Should the market not get a clear and transparent picture of what the next steps are for Greece and the second bailout, investors are likely to be left rather unimpressed and running out of patience.

Kingfisher earnings lifted by France
Kingfisher shares rallied 2%, straight to the top of the FTSE gainers list after the home retailer announced like-for-like sales for the second quarter fell by 0.5%, which was offset by a much stronger growth in sales of 3.7% in France. It’s the strength in France that is giving rise to the share price this morning, helping to counter concerns over the strength of the firm’s UK operations in the face of some severe consumer headwinds.