Strong gains for European shares as China GDP and German ZEW beats forecasts
City Index January 18, 2012 3:50 AM
<p>European stock markets enjoyed a strong early start to trading after Chinese GDP slowed less sharply than expected and German ZEW massively beat forecasts, triggering […]</p>
European stock markets enjoyed a strong early start to trading after Chinese GDP slowed less sharply than expected and German ZEW massively beat forecasts, triggering a rise in risk appetite from investors. However, the longevity of today’s rally may be dictated by the success of the US earnings season, which picks up speed today with the release of Citigroup’s Q4 results.
What we have seen is commodity prices lifted by the better than expected reading of Chinese GDP, and this lift has given a correlated support to heavyweight mining and oil shares this morning.
Chinese GDP lifts stocks
Chinese GDP slowed from 9.1% to 8.9% in Q4, which proved better than many had feared, which was a fall to 8.7%. There remain significant concerns over slowing Chinese growth and the fact that GDP has not slowed quite as quickly as most had expected helps to cool those fears.
What remains less transparent is whether this data will influence Chinese monetary policy, which has changed tact of late to help support slowing growth. The gains we are seeing across the board for resource stocks may be scuppered should this data change the pace at which the Chinese authorities attempt to stimulate growth, though that potential appears far from the mark at present.
The FTSE 350 mining sector saw gains of 2.3% as a result, and these gains were closely followed by a similar charge higher in financial stocks, with the FTSE 350 banking sector also gaining 2% as investor appetite for risk increases.
ZEW see’s huge jump
The German ZEW figures smashed expectations, coming in at -21.6 which is a marked improvement from -53.8 last time around, especially when most analysts had expected a smaller rise to -50. Current conditions also beat forecasts, with the measure rising surprisingly to 28.4 from 26.8, when a fall to 24 had been expected. This is a huge reading, make no mistake, and whilst its important not to get too far ahead of ourselves, it’s hard not to pay attention to the fact that this is the biggest jump in the ZEW for January ever. More evidence of consistent improvement in this reading will be needed to have a long term impact on investor sentiment.
The euro rallied over 1% against the dollar on the back of the ZEW figure, giving the single currency some short term relief from its recent 16 month low woes, whilst a smooth Spanish T-bill auction also brightened the euro’s near term prospects as bargain hunting cemented euro support. The longevity of today’s euro gains however is less transparent with ongoing deadlock in Athens between Greece and private bondholders amidst the rising prospect of a default.
US earnings season could be a welcome blindside
We are now getting into the main calendar for major US companies reporting, with Citigroup set to announce before the US markets open and this could influence strongly how financial stocks trade into the afternoon session. Over the next two days, we also have major US firms such as Goldman Sachs, Google, Intel and Morgan Stanley reporting. The US earnings season could help to provide a welcome blindside for investors from the sovereign debt crisis and the deadlock amongst private bond holders and Greece over bond write downs, and if we get a strong earnings season, this could give stocks further support.
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.