Mixed data see s European stocks trade lower

Worse than expected retail sales data out of the US forced stocks lower in afternoon European trading and countered much of the support gained from better than expected German ZEW sentiment data in the morning session, which had earlier lifted stocks from their Moody’s rating warning induced lows. As such, it’s been a rather mixed trading session, with investors reacting to economic data out of Europe and the US to help style their risk persona in today’s markets, whilst the relief rally from the successful Greek austerity vote in Parliament has already waned somewhat.

As stocks drifted towards the close, the FTSE 100 lost 25 points or 0.4% having earlier rallied to the 5920 level as German data surprisingly beat expectations. Similar falls were seen for the German DAX and French CAC indices.

The Moody’s ratings warning certainly added a negative edge to trading at the start of the session. The ratings agency downgraded six European nations, including that of Italy, Spain and Portugal, whilst at the same time warned that the UK, France and Austria could all lose their Triple ‘A’ credit rating with new outlooks for all three of ‘negative’. The move was not too severe a surprise, given the fact that we have already seen France lose its top notch credit rating and the cautious rhetoric issued by not just Moody’s but from other ratings agencies also towards ratings revisions.

Whether or not Moody’s will eventually downgrade the UK, France or Austria from their top notch credit rating remains to be seen however, but certainly it would appear that all three countries are being given much more time and room for manoeuvre than the Standard & Poors’ gave the US and France.

As a consequence of the Moody’s ratings moves, we saw early pressure on banking and mining stocks, which fell as investors, moved to offset risk in their portfolios.

However, better than expected data out of the UK and Germany helped to lift markets from their lows by mid morning.

UK Inflation falls
UK inflation fell to its lowest levels since November 2010, as the impact of an increase in VAT subsided. UK Inflation fell to 3.6% in January from a previous measure of 4.2%, boosting expectations that inflation should significantly subside throughout the year, helping to give more power to consumers but also boosting expectations that there is further room for more QE from the Bank of England.

Investors will now pay strict attention to tomorrow’s quarterly inflation report for a better gauge of UK inflation and also the likely appetite of the BoE for more asset purchases later this year as part of a second phase of quantitative easing.

German ZEW surprises
The German ZEW sentiment index surprising rose much more strongly than expected to 5.4 from a predicted -12 reading. The current conditions part of the reading also rose much higher than expected, rising to 40.3 from expectations of 30.0, boosting trading in European stocks.

Retail Sales puts a dampener on early positive data 
Data out of the US in the afternoon however put a dampener on German ZEW data, with retail sales in the US failing to grow as well as expected in January and this sent stocks back towards their lows on the day.

US retail sales grew by 0.4% at the start of 2012, less than the 0.7% growth expected whilst the prior month’s growth of 0.1% was downwardly revised to flat.

The drop off is not too surprising given that spending was likely to be reigned in after the holiday season but still, considering the strong jobs growth of the last two months in the US, this could be further evidence that investors are saving and not spending. In truth however, there may not be too much to read into the weaker than expected retail sales data though certainly with US economic data generally outperforming recently, this has given investors an excuse to lock in their gains from Mondays Greek relief rally.