Low volumes as traders adopt a wait and see attitude

European markets were broadly flat in early trading on Thursday as investors digest recent economic data and wait patiently for the central banks to act or at least show some signs that they will act soon. The recent rally stemming from Mario Draghi’s pledge to do “whatever it takes” has been short lived as traders are in a wait-and-see mood as to what the central banks will come up with and so there has not been much commitment to risk on positions.

Traders are not going to take their next big move until there is a catalyst or a clear direction, for this reason volumes have been lower than normal for this summer period. This week in particular has seen some of the lowest daily volumes on the European markets in the past six years.

Globally, China prompted expectations of further stimulus when it stated a worsening outlook for 2012 and the slowing of inward investment in July. Foreign direct investment in China fell to 8.7% – a two month low; this prompted the Chinese Premier Wen Jiabo to say that he sees “growing room for monetary policy operation” as inflation slows.

The FTSE has struggled to find direction this morning as miners lifted the index higher whilst oil stocks and banks put downward pressure on the index. Unemployment in the UK fell from 8.1% to 8% in July – surprising economists and inviting the question as to how this was possible whilst the economy is in its third quarter of contraction.

Other domestic data came in the form of retail sales which showed a 0.3% monthly rise in July and increased 2.8% compared to this month last year. Although no extra impact has been reported from the sales from the Olympic Games, economists will be looking keenly at the August figures to see the impact there.

Elsewhere in the FTSE 250 African Barrick Gold jumped 9.5% after announcing that its holding company Barrick Gold is in discussions with China National Gold Group about the selling of its stake. If China Gold decides to buy over 30% of the voting rights in ABG it would then have to make an offer for all the issued ordinary share capital.

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