Japanese slowdown pulls markets lower whilst stimulus hopes limit losses

We have seen a lower start to the new trading week for European stocks, which traced losses on Asian markets as concerns over the global economy took centre stage. However traders tended to look beyond the much worse than expected Japanese growth data and this helped to limit losses across European stock indices for much of the day.

The FTSE 100 closed at 5831, a loss of 15pts on the day whilst the DAX and CAC indices both lost 0.5% and 0.27% respectively.

Figures showed that the Japanese economy grew an annualised 1.4% from April-June, half the expected rate and a sharp deceleration from the upwardly revised 5.5% expansion in January-March. The disappointing results were due to weak consumer spending and a strong yen pressuring the country’s exports.

As seems standard now with disappointing economic data, the markets managed to limit their losses by pining hope on the fact that with disappointing economic data around the globe, governments will look to roll out more stimulus measures. This seems to be the thought process behind recent market rallies which have been prevalent even after bad data.

By mid morning the DAX was trading 0.3% higher and the CAC was up 0.05%, however, the FTSE failed to push into the black, trading down 0.15% after feeling the pressure from heavyweight resource stocks. Vedanta, Xstrata and Kazakhmys traded lower as nagging worries about the global economy continued. As the afternoon progressed however, all indices started to reverse and close in red territory.

Petrofac topped the FTSE 100 loser board despite reporting a solid first half. Earnings per share increased 32% to 94.8c and pre-tax profits rose to $412.5m from $300m the previous year. 5% was lost from the value of the share as the market acknowledged that net profit growth in the second half will be lower than that in the first half and on fears over contract delays.

On the positive side, banks set the trend with Standard Chartered adding 0.5% as it continues to regain lost ground since the accusations of illegal transactions with the Iranian government. Schroders and Lloyds Banking Group all saw gains of over 0.8%, topping the FTSE leaderboard.

Although there is no major domestic economic data due for released today, investors will be focusing their attention on some big numbers out later in the week. These include July inflation figures tomorrow where UK inflation could fall to its lowest levels since November 2009, retails sales numbers later in the week as well as the publication of minutes from the Bank of England Monetary Policy Committee meeting.