Stocks remain steady ahead of a busy day

<p>Investors have had a cautious start to the trading day, with European markets trading flat as they assess the market’s current technically overbought status and […]</p>

Investors have had a cautious start to the trading day, with European markets trading flat as they assess the market’s current technically overbought status and await growth data and a policy decision from the US.

Shares across Europe are looking ‘toppy’ as the indices reach multi-year highs. The FTSE 100 alone has increased over 7.5% in January and although technicals suggest “over bought”, this is not necessarily a sell signal in itself. It does, however, mean that we expected investors to pause for breath and really  focus on corporate results and economic data releases to give an indication for the next move.

Global growth is a factor which had weighed heavily on investors’ minds, however, with recent economic data showing signs of improvement that the markets had rallied higher. Adding to the good news China’s top think tank today increased its forecast for Chinese growth in 2013 from 8.2% to 8.4%. Some investors are nervous that the current improvement in economic data could lead the Federal Reserve to change its stance on Quantitative Easing, however, the reality is that the improvements are unlikely to be sufficient to force the Fed to move its hand and hence the conclusion to the two-day meeting is much more likely to be a non event. Growth data from the US due at 1.30pm GMT is expected to show an annualised growth of 1.1% for the fourth quarter of 2012 and has the potential to send stocks higher if it comes in better than expected.

On a negative front growth data from Spain this morning reported a contraction of 0.7%, slightly worse than the 0.6% expected and is significantly worse than the 0.3% contraction in October 2012. Spain is now in its sixth successive quarter of contraction, with few signs of turning around quickly especially given its excessively high unemployment figures. This data was the first growth data out of Europe this year and so was keenly watched as to the tone to be set for the Euro area, however, that said an Italian Bond auction due today is expected to go well.

Today is not only a busy day with regards to economic data but also corporate earnings and trading updates. Antofagasta posted strong production results for the fourth quarter, with group copper output increasing 7.8%, however, the share price fell thanks to the wider mining sector being out of favour. Sector peers Polymetal also posted strong figures beating production expectations in 2012 for both gold and silver.

Johnson Matthey was also trading lower after reporting that both sales and profits fell in the third quarter, however, United Utilities was higher despite saying that revenues increased at a rate “slightly below the slow regulated price rise of 2012/13”. Imperial Tobacco revealed operating profits would fall in the first half as market trends worsened in a number of key markets such as Europe and Russia, but sales continue to strengthen in South American, Asia and China.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.