Market Sees Relief Rally on Chinese Growth Data

Europe experienced a mixed start to the final session of the trading week. Benchmark indices in UK, France and Germany rose on the much awaited Chinese growth data whilst peripheral Europe saw a pull-back after Moody’s downgraded Italy’s sovereign debt rating by two notches.

A positive start here is the UK was welcomed after investors had felt downbeat about growth concerns and fading hopes of near term US monetary stimulus in the previous session. By mid-morning today the FTSE gained 0.5% with stocks sensitive to the development of China’s economic outlook pushing the index higher.

China reported that its economy grew by 7.6% as expected, however this is the weakest rate of growth in over three years, showing that its export dependent growth model is being seriously affected by the problems in Europe and an overall global slowdown. However, quarter-on-quarter the figure had increased from 1.6% to 1.8% lifting sentiment in London with resource stocks responding especially well.

Miners and Burberry both sensitive to future demand from China lead the rise on the FTSE. Burberry, particularly pleased that the data investors had been eyeing all week came in on expectation, has risen 3.28% importantly after the weak results it posted on Wednesday. Within the mining sector Polymetal International gained almost 4% whilst Eurasian Natural Resources climbed 2.2%.

Looking a peripheral Europe, Moody’s cut the Italian Government bond rating by two notches with a negative outlook. It is expecting Italy to experience a further increase in its interest costs to service its debt due to increasingly fragile market confidence. Italy’s near term economic outlook has deteriorated, growth figures are weaker and unemployment higher. The problem with the eurozone continues to be an undercurrent for market sentiment and although there are periods when investors turn their attention to other pieces of data, when the waters settle the focus always returns to European debt crisis.

So far this morning the banks have remained resilient to this news but the banking sector as a whole will fall under the spotlight again this afternoon as reporting season in the US sees results from JPMorgan and Wells Fargo.