FTSE underperforms amid China caution and US GDP

The UK’s F100 underperformed the wider markets as sentiment waned over China growth fears and caution over the marginally lower US GDPnumber. The UK index had traded lower for much of the morning as Mining stocks weakened the index amid falling metal prices and lingering concerns that a slackening in Chinese demand could impact on mining heavyweights. Billiton, Rio Tinto and Fresnillo all retraced up to 2% as investors preferred to take New Year profits in the face of such uncertainty. The DAX and DOW remained in positive territory as F100 shed 1% suffering from its weighted exposure to global miners.

UK retailers also weighed on the index as UK consumer confidence fell to its lowest level for two years. Retail giant Marks & Spencer’s paired recent gains falling 1% and B&Q owner Kingfisher fell 1.5% as investors anticipated a slowdown in the months ahead as nervous consumers absorb tax rises and spending cuts. The growing realisation of the fiscal austerity measures are beginning to impact not only spending habits, but consumer sentiment, and with a recent fall in third quarterGDP, the high street remains a gloomy place.

Investors mood was partially offset by a solid US GDP number showing a steady growth of 3.2 against 3.5 expected. Investors were mindful however that the US recovery has been predicated by a tremendous fiscal stimulus and extended tax cuts the like of which unseen in the UK. Although cheered by solid US growth, investors see the lagging employment numbers as better barometer of the health of the US recovery, with an unemployment rates still above 8% healthy GDP numbers are smoke and mirrors.

As we approach the last full week of January, giddy optimism for the year has given way to a more realistic contemplation that the global recovery will be a long and bumpy ride here and across the water. The market has retracted some 2.5% from mid month highs, and a more realistic attitude appears to be emerging. Investors are confident that value remains in global equities but recognise that it is likely to be volatile gradual rally rather than an uninterrupted surge to new highs. With geopolitical issues resurfacing in the Arab world, we could see a flight to safety as we approach the weekend.

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