Choppy Trading after European Data Disappoints

Early gains fell away in trading on Thursday after a raft of economic data out of Europe broadly disappointed, convincing traders to close out buy positions and reduce exposures in the miners, though financials and energy stocks clung onto gains, leaving the FTSE with a rally of 25 points by 10am.

It is the raft of weaker than expected economic data out today that has continued to weaken sentiment in Europe. German flash PMI data came in below expectations, with manufacturing PMI falling to 45 against a consensus estimate reading of 47.

German Service PMI marginally beat expectations to read 52.2 but when looking at broader eurozone PMI, all figures disappointed. Eurozone manufacturing flash PMI fell to 45 when a small increase was expected; services PMI fell to 46.5 – a large and significant fall – whilst German Ifo readings also badly missed forecasts.

The data has essentially told a story that both German and French manufacturing has shrunk at its fastest pace in 3 years, which is alarming and shows that the strongest economies in the eurozone are not immune to the debt problems engulfing Spain, Italy and Greece.

The data will likely keep the pressure on both Merkel and Hollande as they attempt to strike a balance between speeding growth and maintaining austerity.

Added to the above, a second reading of UK GDP for the first quarter of this year showed that the UK suffered a deeper contraction than expected, with Q1 growth slumping -0.3% from a first reading of -0.2%.

However, some traders are looking on the brighter side to the disappointing data today by interpreting that weak data will likely put additional pressure on Central Banks to announce more stimulus measures in the form of QE. It is this element that has helped to keep equities supported in the session despite the data, and weaken the pound sterling, which fell to 1.5677 against the US dollar.

However, with the EU Summit promising nothing and delivering nothing last night, traders are still showing signs of extremely short term trading habits, which could continue to make trading in Europe choppy and open to sharp reversals.