Fundamentals, Uncategorized

European Equities Close Lower on Weak GDP Data, Tightening in China

Europe Session Key Developments

•    China Unexpectedly Increases Bank Reserve Requirements
•    Fourth Quarter Growth Disappoints in Germany, Italy, Euro-Zone
•    Euro Falls Against U.S. Dollar For Third Day, Cable Drops

European stocks closed lower today after China unexpectedly increased bank reserve requirements and Euro-Zone growth fell short of expectations in the fourth quarter.  The announcement by the Chinese government forced banks to set aside more deposits as reserves for a second time in the last month.  The announcement came directly after the Hang Seng Index stopped trading and therefore did not impact Chinese stocks, which fell slightly on the trading day.  After the news of China pushed European equities lower during early trading, weak growth reports from the Euro region intensified the downward pressure.  Germany announced that growth stalled in the fourth quarter, as the country’s GDP failed to rise amid expectations for a 0.2 percent increase.  Later, Italy announced that its economy actually contracted 0.2 percent in the fourth quarter, while the European Union’s statistics office in Luxembourg announced that the Euro region economy rose a modest 0.1 percent as a whole.  The bearish news, coupled with investor concerns over fiscal problems in Greece, put pressure on the Euro currency for a third consecutive day.  The sixteen-nation currency fell for a seventh time in the last eight days against the Dollar and has now declined over 5 percent against the American currency.  The greenback’s strength was a clear indicator of continued bearish sentiment in the market today, and led to a sell-off in all risky asset classes.  Crude oil fell over 2 percent by the close of European markets, while gold and silver futures sold off nearly 1 percent each.

FTSE 100                        5142.45                     -19.03                     -0.37%
British stocks fell in the week’s final day of trading as industrials and financials dropped at least 1.2 percent each.  Nearly four stocks fell for each that gained on the FTSE as investors showed concern that the economic recovery may be stalling out after weak growth data from the euro region.  Lloyds fell 3.2 percent to lead financial shares lower, while Xstrata and Vendata Resources led the decline in commodity based stocks.  Mining stocks were hurt by falling commodity prices after China, the world’s largest copper consumer and second-largest oil user, moved to further curb lending.  Copper fell as far as 3.2 percent on the London Metal Exchange.

CAC 40                            3599.07                     -17.68                     -0.49%
Trading in Paris led to a near one-half percent decline as weakness in the broader Euro economy overshadowed better-than-expected French GDP growth in the fourth quarter.  Bank shares were led lower by at least a 2 percent drop in BNP Paribas, Societe Generale, and Credit Agricole.  Shares of BNP Paribas fell for a second day after the bank was downgraded by analysts at Deutsche Bank, while bank shares in general were hurt by tightening in China and concerns over stability in the euro zone.

DAX                                 5500.39                      -3.54                     -0.06%
The German index posted the smallest decline among the major European indices, as industrials, financials, automobiles, and technology shares fell over 1 percent each.  German economic growth stalled in the fourth quarter, disappointing investors who expected a 0.2 percent rise for the quarter.  The Dow Jones Stoxx 600 Automobiles & Parts Index was the worst performing among all 19 industry groups, falling over 2 percent on the session.  Daimler and BMW, the largest luxury carmakers in the world, fell over 1 percent each.

IBEX 35                          10224.90                     -56.80                   -0.55%
Trading in Spain led to the largest decline among the major European indices, as industrials and financials shares fell over 1 percent each on concerns over the country’s debt problems and slow economic recovery.  The National Institute of Statistics announced yesterday that the country’s GDP fell 3.1 percent in the fourth quarter on an annual basis and slowed 0.1 percent on a quarterly basis.  Employment also remains concerning as the Spanish jobless rate nears 20 percent.  Obrascon Huarte, the Spanish building and infrastructure firm, was the worst performer on the index as weakness in construction firms carried over from yesterday’s session.

FTSE MIB                       21035.91                    -40.54                   -0.19%
Italy’s FTSE MIB posted a slight decline today after the country announced that its economy unexpectedly contracted 0.2 percent in the fourth quarter.  The most actively traded stocks in Milan included banks Banco Popolare and UniCredit, which fell at least 1.6 percent each after China’s decision to curb the lending activities of its banks.  Cement-maker Buzzi Unicem fell 2.8 percent after being downgraded by Gruppo Banca Leonardo, while appliance-maker Indesit furthered declines after being downgraded at Equity Sim.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com