Japanese slowdown pulls markets lower whilst stimulus hopes limit losses

We have seen a lower start to the new trading week for European stocks, which traced losses on Asian markets as concerns over the global economy took centre stage. However traders tended to look beyond the much worse than expected Japanese growth data and this helped to limit losses across European stock indices for much of the day.

The FTSE 100 closed at 5831, a loss of 15pts on the day whilst the DAX and CAC indices both lost 0.5% and 0.27% respectively.

Figures showed that the Japanese economy grew an annualised 1.4% from April-June, half the expected rate and a sharp deceleration from the upwardly revised 5.5% expansion in January-March. The disappointing results were due to weak consumer spending and a strong yen pressuring the country’s exports.

As seems standard now with disappointing economic data, the markets managed to limit their losses by pining hope on the fact that with disappointing economic data around the globe, governments will look to roll out more stimulus measures. This seems to be the thought process behind recent market rallies which have been prevalent even after bad data.

By mid morning the DAX was trading 0.3% higher and the CAC was up 0.05%, however, the FTSE failed to push into the black, trading down 0.15% after feeling the pressure from heavyweight resource stocks. Vedanta, Xstrata and Kazakhmys traded lower as nagging worries about the global economy continued. As the afternoon progressed however, all indices started to reverse and close in red territory.

Petrofac topped the FTSE 100 loser board despite reporting a solid first half. Earnings per share increased 32% to 94.8c and pre-tax profits rose to $412.5m from $300m the previous year. 5% was lost from the value of the share as the market acknowledged that net profit growth in the second half will be lower than that in the first half and on fears over contract delays.

On the positive side, banks set the trend with Standard Chartered adding 0.5% as it continues to regain lost ground since the accusations of illegal transactions with the Iranian government. Schroders and Lloyds Banking Group all saw gains of over 0.8%, topping the FTSE leaderboard.

Although there is no major domestic economic data due for released today, investors will be focusing their attention on some big numbers out later in the week. These include July inflation figures tomorrow where UK inflation could fall to its lowest levels since November 2009, retails sales numbers later in the week as well as the publication of minutes from the Bank of England Monetary Policy Committee meeting.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.