Stronger than expected German GDP lifts stocks from slump for now

Stronger than expected German GDP data out before European markets opened has helped to trigger some tentative buying back into the market after Monday’s heavy stock market falls. 

Despite the positive start to the European equity session, buying remains tentative and investor sentiment is frail with continued uncertainty over Greece and its place in the eurozone, alongside fragility of Spanish and Italian banks.

Within the first hour of trading, the FTSE 100 had traded higher by 32 points in an attempt to regain the 5500 level, whilst the DAX (Germany 30) and CAC (France 40) are both seeing gains of between 0.9% and 1.2%. 

German GDP rose 0.5% in the first quarter of the year, stronger than the 0.1% expected and helping to ease fears that the strongest economy within the eurozone was faltering at a crucial time for the EU. 

The strong recovery in GDP was a positive surprise and helps to confirm that Germany avoided a technical recession after slipping into a contraction in the fourth quarter.

Italian GDP disappointed however, contracting deeper than expected at -0.8% for the first quarter against expectations of -0.6%. 

We have a raft of data out today which is likely to play a role in how European markets trade, such as the German ZEW and Eurozone GDP, both due out at 10am. Later in the session we have US inflation, retail sales and New York State manufacturing.

Eyes will of course remain fairly swayed towards Athens for much of the day given the failure of party leaders to agree terms to form a coalition. Party leaders are set to arrive at the Presidential Palace later this morning, where it is expected that the Greek President will ask politicians to stand aside and allow a government of technocrats to lead the country away from the seeming fiscal abyss that it faces. 

However, the leftist Syriza Party has already publicly rejected those calls by the President and given their failure to agree to form a coalition with the other leading parties, Greece remains in a state of political and fiscal no man’s land. 

Investors will naturally watch each and every news flow out of the country as the day progresses, which could likely leave trading to be rather choppy throughout the day.

From a sector perspective, it is the main three heavyweight sectors leading the way higher this morning; oil, miners and banks. All three FTSE 350 sectors gained an average of 0.7% in early trading, recovering somewhat from heavy weakness yesterday. 

G4S shares rallied straight to the top of the FTSE 100 by 3.6%, after the security firm saw a 7.5% rise in first quarter revenues. Shares in AIG fall 1.2% as investors reacted to a downgrade in stance on the share price by bank JP Morgan, who cut their rating to ‘neutral’ from ‘overweight’, stating that in the near term they see headwinds from Spanish trading.

Renishaw was the top mid cap stock performer, with shares rallying some 11% after the firm said it expected profit for the year to be ahead of the £80.4m reported last year, reflecting early signs of an upturn in the electronics markets. 

Numis raised their guidance on Renishaw shares to ‘hold’ as a result of the news this morning.”