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Markets recover after shocking German GDP

European markets opened in negative territory as they digested a raft of disappointing domestic economic data. Most significantly, German GDP dropped to 0.1% for the second quarter, from 1.3% in the previous three months and against expectations of 0.5%. The statistics are worrying for the supposed “powerhouse” of Europe, which was depressed by a negative trade balance and lower investment in construction. The DAX was trading down around 2% in response to the results, with FTSE 100 experiencing similar declines at one point.

In contrast to a disappointing core, equivalent data for Spain and Italy showed that their respective economies grew at 0.2% and 0.3%, in line with analysts’ expectations. With poor German data, expectations for the Eurozone GDP results to be released later in the day had to be pared back. The EU figures came in at 0.2% for the quarter, below the 0.3% previously forecast and largely as a result of German and French contributions.

The ECB continued its Spanish and Italian bond buying campaign, with 10 year yields hovering around the more sustainable 5% level. The UK saw consumer price inflation data rise to 4.4% in July from 4.2% in June, ahead of the 4.3% forecast. The Office for National Statistics said that higher fees for banking and other financial services and reduced discounting by retailers (who had initiated summer sales a month earlier) were among the factors driving inflation higher. Retail price inflation was in line with forecasts at 5.0%.

The FTSE staged a comeback in the afternoon to come within sight of positive territory, boosted by US industrial production data for July. Industrial output saw a 0.9% gain, almost double analyst’s expectations and capacity utilisation (which is a gauge of a firms relative performance compared it its maximum potential) rose to 77.5 percent, the highest reading since August 2008.

With European GDP in the spotlight, it was unsurprising that those stocks most correlated to economic success were the worst affected in equity markets. Glencore, Vedanta and Antofagasta were amongst the worst performers on the day, all lower by at least 2.5%.

Gold’s 0.9% rise ensured that FTSE constituents Randgold Resources and Fresnilo outperformed, rising 3.9% and 3.3% respectively. The market itself managed to put on around 30 points in the last 5 minutes of trade to finish the day up by 0.15% at 5358.

This was posted in Bdaily's Members' News section by John Dance .