Miners offer support on stronger than expected Chinese Growth data

European markets pulled back slightly from their morning rally although remained in positive territory for the close. Basic resource stocks continued to provide support following stronger than expected data, released from China early this morning.

China’s economy grew 7.9% in the fourth quarter compared to a year earlier beating expectations of growth of 7.8% and fueling optimism that the worst was probably over for the world’s second largest economy. Other data from China painted a similarly strong picture with Industrial Output in December rising 10.3% higher than November’s figures of 10.1% and Retail sales came in at 15.2%, higher than the 14.9% expected. Markets seem to be assuming that the Chinese economy has turned a corner, creating larger opportunity for disappointment in forthcoming data releases, with this in mind cautious optimism could be a more suitable outlook. As a result basic resource stocks that are particularly sensitive to growth data from China rebound strongly after two days of negativity.

Rio Tinto was a notable riser, gaining over 1.8% following a loss of 0.5% in the previous session on the back of a $14 billion impairment charge and the consequent stepping down of its CEO. It has been suggested that Rio Tinto will now be looking for some goodwill in the market and therefore perhaps some giving back to the shareholders which could be interpreted as an increased possibility of a share buyback, which if planned would be announced in Rio Tinto’s full year results.

Evraz also put in a strong performance gaining over 4.8% following positive comments from Credit Suisse about the steel sector.

Here in the UK, Retail Sales fell by 0.1% month-on-month in December, however, this did little to affect the momentum of the market, despite the fact that it adds to the probability that the UK economy shrank in the fourth quarter of 2012.

Across the pond in the US, University of Michigan Confidence data came in weaker than expected and put downward pressure on the US markets which slipped into negative territory.

Looking towards next week we have the beginning of the European earning season which starts in earnest on Monday. The overall expectation has been set fairly low with the average expected to report a drop of 1% year on year in their fourth quarter. This low overall expectation does perhaps leave some space for upside surprises which may inject some power into a rally that is starting to look a little tired.