FTSE down 1% in early trading after China GDP raises fears of aggressive monetary tightening

<p>The FTSE 100 Index traded lower by as much as 1% on Thursday as traders continued to exit positions in heavyweight mining firms after Chinese […]</p>

The FTSE 100 Index traded lower by as much as 1% on Thursday as traders continued to exit positions in heavyweight mining firms after Chinese GDP accelerated to 9.8%, above market consensus with most expecting GDP to slow moderately to 9.2%. The key issue with China’s GDP is the fact that China has now adopted a more prudent monetary policy, meaning that out of control inflation and accelerating GDP is likely to give China more ammunition to hike rates, perhaps more aggressively than the market would like or expect in the near term and this could hamper metal demand.

The key miners have proved incredibly sensitive to anything that may indirectly or directly affect demand from key emerging markets such as China and today’s reaction by investors proves this yet again. The mining sector is therefore the key drag on Indices in Europe today, particularly the FTSE 100 where many key miners are heavyweight stocks. The mining sector has fallen 2% in early trading in London, tracking weakness in Copper prices and trading near its December lows.

There were some early warning signs to investors in yesterday’s session that a correction could be on the cards in the near term and today’s trading session appears to reinforce this warning. The Volatility Index, investors’ key gauge of fear or pessimism in the market, nudged higher by 9% yesterday, rallying from levels where the Index has historically found support. And today the FTSE Volatility Index has also rallied another 5% on top of yesterday’s gains of 12%, which could prove troublesome for the markets if bearish technical indicators are proved correct.

EasyJet shares fall 13%
Shares in budget airline carrier EasyJet fell as much as 13% on Thursday after the company took a £31m hit from the disruptive December weather. Shareholders also became concerned about rising fuel costs which have risen from $681 a metric tonne to $897 and this could pressurise margins. Shares in the airline carrier have enjoyed a good run in 2010, rallying 22% and so whilst investors are naturally concerned about the airline’s prospects this year when aligned with higher fuel prices, we have also seen traders use today’s results as an excuse to bank profits.

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