European markets push higher on Chinese comments and stronger than expected GDP data

<p>European stock indices pushed higher on Wednesday after stronger than expected French and German GDP data and comments out of China that the world’s fastest […]</p>

European stock indices pushed higher on Wednesday after stronger than expected French and German GDP data and comments out of China that the world’s fastest growing economy will continue to support Europe through its debt crisis helped to lift stock prices.

The FTSE 100 rallied 15 points or 0.26% by mid morning, and would have traded higher by 0.6% had it not have been for 22.6 points being discounted off the FTSE Index as a result of heavyweight stocks such as BP and GlaxoSmithKline going ex-dividends.

We saw a sharp turnaround in the final hour of trading in the US last night, and a stronger session in Asian trading this morning, which has kick started European investors to trade on the front foot this morning.

China rhetoric supports
Undoubtedly comments from Chinese Central Bank governor Zhou Xiaochuan that China will continue to invest in Europe and hold European sovereign debt at a speech in Beijing has helped to support investor appetite for risk. The need for third party support into Europe to help aid its bailout funds either directly or indirectly through the IMF is crucial in preventing further contagion effects, and the rhetoric out of China to reaffirm their commitment to Europe is welcoming for investors.

Of course, given the importance of Europe to China as one of its biggest trading partners, this affirmation of support is of no real surprise. However, still no numbers of firm liquidity support were mentioned, whilst China also maintained that indebted nations in Europe must also strengthen fiscal consolidation, cut deficits and reduce debt risks, which shows that Chinese support carries conditions. As such, there is no blank cheque from China to Europe and investors need to take the Chinese comments with a pinch of salt.

GDP stronger than expected
Stronger than expected French and German GDP data before the market opened also support equities in morning trade. French GDP last quarter grew surprisingly by 0.2%, when a contraction of 0.1% had been expected, whilst German GDP contracted less severely as expected, falling 0.2%.

Bank of England Inflation Report eyed
Eyes now switch to the Bank of England quarterly inflation report which will give investors a better gauge of the appetite of Mervyn King and the UK Central Bank for further asset purchases as part of a second phase of QE later this year. Any upward revisions in 2 year projections of UK inflation could hamper the amount of QE armoury the BoE has at its disposal given the inflation pressures further asset purchases creates.

Sports Direct shares rally on strong update
Sport Direct shares were in favour in the morning session after the sports retailer reported a strong update to the market. The firm said total sales grew by 9.1% to £453.8m, with profits rising 10.2% to £184.4m. The performance was ahead of expectations by the board of directors, who further pleased shareholders by reporting the final dividend will be reviewed in light of the stronger quarters’ performance. Shares rose 6% on the back of the update.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (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.