Miners and banks drag European Indices lower by 2

Selling in the key miners and banking stocks was enough to lock in a weak start for European indices, with the FTSE 100 losing 2% whilst the DAX and CAC were heavier fallers, losing over 3%.

The near term support level on the FTSE 100 of 5260 was easily broken this morning and this means that a revisit of the 5000 level is feasible in the near term if we start to see todays selling gain more momentum and data out from the US this afternoon disappoints.

The earnings and subsequent warnings on outlook from tech bellwether Dell, whose shares subsequently fell 10% yesterday, has reminded the market that despite a 10% rise in stock indices over the last week, global growth remains incredibly fragile. With Hewlett Packard also set to announce earnings after the European close today, naturally investors are trading with caution in case they report similarly disappointing numbers tonight.

After the initial bounce higher last week as investors bought into the badly beaten stocks that had been aggressively sold off earlier in the month, this week has marked a different tone with lower volumes and a lack of will shown by traders to build on the retracement higher. There remains a lot of uncertainty in the markets clearly but there are a lot of traders not at their desks and on holiday right now, particularly after the sharp early August losses. The lack of buyer conviction may be just as much about holidays as global growth uncertainty. It will be interesting to see what trader sentiment is like in early September. For now though, we need to be mindful of the fact that lower volumes can exacerbate price moves and we have certainly seen elements of that this week.

A negative note from bank Morgan Stanley, which downgraded its global growth estimates for the year to 3.9% from 4.2% and 2012 growth to 3.8% from 4.5%, has also weighed on sentiment today. The bank also warned that developed economies could see growth of just 1.5% over 2011 and 2012 whilst the global recovery is ‘dangerously close to recession.’

Miners the key drag on stock indices
The miners are the key drag on the FTSE 100 today, with 5% falls seen in Xstrata and Kazakhmys, with investors concerned that a rise in Chinese bank bill yields could be a prelude to further interest rate hikes as the world’s fastest emerging economy continues along its prudent monetary policy. A downgrade of Chinese growth outlook by Deutsche Bank also weighed on the sector as investors continue to second guess the future impact on metal demand.

UK retail sales slow to 0.2% in July
Data from the Office of National Statistics showed that UK retail sales slowed quicker than expected last month to 0.2%, from an upwardly revised June growth of 0.8%. Whilst the retail sales figure for last month was somewhat worse than originally expected, it does not tell the market anything that it does not already know; which is consumer spending remains weak and the UK retailers continue to face serious headwinds with household spending showing little signs of ‘freedom’.