Member Article

Footsie flat following mixed economic data

European bond yields were once again cause for concern this morning, Italy’s 10 year benchmark debt once again closing in on, and eventually exceeding, the 7% yield that was only seen last week. Spanish debt also came into focus with a yield at 6.3% following an early debt auction and with political insecurities given the country is to hold a general election on Sunday. Appetite for Italian debt reduced as Mario Monti, the prime minister in waiting, faced resistance on forming the government’s new cabinet. The spread (or gap) between the yield on the French and German 10 year debt also reached a record level today, bond markets clearly pricing in a difficult outlook for France, the eurozone’s second largest economy.

The contagion entering the eurozone’s core came despite economic data that was, if anything, slightly better than expected. German and French quarterly growth figures came in at 0.5% and 0.4% respectively, with the second quarter in Germany being revised up to 0.3% from an initial reading of 0.1%. Whilst not evidence of blistering growth, Germany was in line with forecasts whilst France was slightly ahead and compares to a previous reading of -0.1%. The announcement preceded the equivalent figure for the eurozone area as a whole, which came in as forecast at 0.2%. The news however wasn’t enough to reverse fears that the currency bloc is heading into recession. Domestically, evidence pointed towards a peaking of UK inflation with the consumer price index falling to 5.0% from a September reading of 5.2%.

Data from across the Atlantic was justifiably well received, with total retail sales increasing 0.5% in October following the 1.1% rise the previous month. The news, which was ahead of expectations, painted a more optimistic outlook for the US economy which is largely driven by consumer spending. The figure was helped by demand for Apple’s new iPhone 4S, which sold 4 million handsets in the first three days of sales following its launch in mid-October.

The raft of news ensured significant moves in equity markets, although the fluctuations were confined to negative territory for the first half of the day. The FTSE’s low (losing around 1.5%) was reached around midday, before a rally that saw the index close pretty much where it opened (5517), lower by 1.6 points or a negligible 0.03%. This compares to closer to 1% and 2% losses on the DAX and CAC respectively.

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