European markets start lower on growth outlook

European stock markets started Tuesday trading in red territory, with Indices losing between 0.35% and 0.7% as investor demand for stocks was sapped in the near term by downbeat growth outlooks.

The FTSE 100 traded lower by 0.35% as traders returned to their desks after a long bank holiday weekend that saw the UK index closed for trading yesterday. Yet still volumes are expected to be on the weak side this week with many investors still on vacation.

News that Japan had cut its economic outlook due to a deceleration in activity in the US and China, played a role in the negative bias to trading this morning. The cut was its first made by Japan since October 2011 yet what is important in this reading is that it highlight a deterioration in activity of the top three economies in the world by GDP; the US, China and Japan. Naturally, investors may well take a the read across from this bearish cut in outlook as an indication that further stimulus is warranted and perhaps likely, and it this ‘hope’ that is helping to keep stocks relatively stable for now.

From a sector perspective, we have mining stocks being a key drag on the UK Index, with the sector losing 1.3% early on, with losses mostly correlated to the bearish growth outlook in Asia and the general risk off start to trading. Retail stocks are also weighing on the FTSE, with the sector losing 1.6%.

Kingfisher shares fell the most in trading, with the retailer’s shares losing 3.75% after Bank of America/Merrill Lynch cut its outlook on the shares to underperform, from an original buy stance. The broker highlighted concerns over French consumer trends and a sharp slowdown in the housing market which could hurt the retailers like for like sales. The broker gave the firm a new price target of 270p, a reduction of 15% from their previous target.

Marks and Spencer’s shares also lost close to 2% in trading as investors locked in some of their gains after the retailers’ shares price has rallied 25% in the last 6 weeks on bid speculation. Private equity firm CVC had been speculated last week to be preparing a bid for the UK retailer.

Later in today’s session we see the release of US consumer confidence data, which is expected to rise marginally from 65.9 to 66.0. Yet the majority of important economic data takes place from tomorrow, where we will see the latest US GDP reading, alongside US Pending Homes Sales and German inflation figures.

Another nudge higher in the Volatility Index (VIX) yesterday remains a concern, particularly as it coincides with global stock indices at important technical levels. Yesterday the VIX rallied 7.71%, whilst today the FTSE VIX also rallied 5% in early trading.