Industrial data counters weaker EU GDP to help FTSE 100 close marginally higher

Weaker than expected Q2 GDP data for Germany and broader Eurozone was enough to send stock indices across Europe lower by around 1% on Tuesday before a stronger jump in US industrial production helped to spark a recovery into the close, helping the FTSE 100 to close into positive territory on the day, but only just.

It was the speedier than expected slowdown in Eurozone GDP, and in German growth in particular, that sent stocks into the red for much of the day. Eurozone Q2 GDP slowed to 0.2% when the market had hoped for 0.3% with German GDP slowing much quicker than expected to 0.1%, barely growing when the market had expected at least 0.5%.

Today’s GDP data gives investors yet more evidence that the economic recovery is slowing quickly and with the huge amount of uncertainty over the sovereign debt situation and various austerity measures set to be implemented to combat huge deficits, growth could be stagnating sooner than most would have anticipated a few months ago.

Moreover, Germany has been a beacon of strength for the entire eurozone at a time when peripheral economies are struggling. To see German growth slow at such a fast pace shows that the country is not immune to the troubles of its neighbours but also reaffirms that global growth and activity is slowing too.

Eyes now switch firmly to the productiveness of the meeting between Angela Merkel and Nicolas Sarkozy, as the two leaders discuss ways to combat the eurozone crisis. The markets eagerly await the press conference that follows their meeting at approximately 5.30pm. With the market already well aware that the two leaders will not discuss a euro bond, it will be interesting to hear about what proposals were discussed and whether any common ground was reached on providing additional liquidity to indebted nations in need.

US industrial production sparks stock recovery
However a much stronger reading of US Industrial Production helped to spark a bit of a recovery in Europe in the afternoon session with the data itself providing a ray of light in the current dark cauldron of economic data. US industrial output grew by 0.9% in July, much more than the 0.5% expected, whilst June’s 0.2% increase was also upwardly revised to 0.4%.

This is the fastest pace of growth for US industrial production in seven months with particularly strong data seen in automakers, which helps to reaffirm that demand is firming having suffered from a Japanese tsunami triggered blip. The US data itself was enough to help the FTSE 100 retrace some 50 points of the day’s heavier losses of over 1% in the final few hours of trading and once the closing auction had been completed, the FTSE 100 closed higher on the day by 7 points to 5357.

Investors would have also been pleased, but not surprised, to see Fitch Ratings reaffirm their Triple ‘A’ credit rating on US debt today too.

It was ‘weakness in the oil firms, which has been one area that has rallied strongly of late, that has weighed on the FTSE 100, along with the mining sector. Both the oil and mining FTSE 350 sectors fell by around 0.7% on the day tracking broad selling of Copper and Crude Oil, which fell 1% and 0.7% respectively. Real Estate firms also weighed on the UK Index, with shares of British Land the worst faller on the day, with shares losing 3.7%.