Equity markets in Europe are lower after Trade Balance data out of China came in much worse than market estimates and this is seen weighing on risk sentiment as confidence in the global economic recovery remains sluggish. Prior to the release, however, European markets had posted 5 straight days of gains but this latest move is dragging down equity values in the US as Asia as well, so it appears as though investors were looking for an excuse to take profits and the Chinese Trade figures were the latest reason to start selling.
In stock specific news, German telephone company Drillisch AG (DRI) dropped 1.4 percent after the company released its latest earnings report, which showed that second-quarter income fell by a massive 43 percent. The largest steelmaker in Germany, Thyssen Krupp AG (TKA), helped to balance this news and rose by 2 percent after their latest earnings report showed a positive number for the first time in four quarters. Today’s activity showed led the Stoxx Europe 600 Index lower by 0.4 percent to trade below the 270 level.
On the whole, the Stoxx 600 benchmark has made gains of 1.4 percent this week, which is the 10th consecutive week of gains. This is coming largely as a result of stronger earnings reports from European companies. This performance is not being matched in the US, however, as the Standard & Poor’s 500 Index is lower by 0.4 percent, and the MSCI Asia Pacific Index is also posting losses of 0.6 percent.
For the most part, recent stock gains have mostly been seen as a result of market expectations that global central banks will be forced to inject additional rounds of quantitative easing stimulus. But there has been little in the way of direct confirmation of this by voting members of global central banks, and investors have started to consider the possible that this will not be happening before the end of the year. So, as long as central banks refrain from making stimulus comments, investors will be forced to focus on economic data and so far, these figures have remained relatively weak.
The latest examples have come from China, where yesterday’s inflation numbers showed that consumer prices are declining but this was nowhere near as market-moving as the Trade Balance figures today, which showed that outbound shipments rose by 1 percent relative to this point last year, while imports were higher by 4.7 percent during the month of July. The market estimates were calling for a rise of 8 percent in monthly export growth, after the 11.3 percent increase previously. Imports were expected to rise by 7 percent, so these reports are coming along with previous data suggesting that China’s industrial-output growth dropped to its lowest levels in three years. Given these negative reports, expect a weak close on Friday, as investors take profits from the rallies seen previously.
The USD/JPY is starting to flatten out in the 78.50 region and if prices do not see a drop before the end of next week, the daily downtrend line from the end of March will be removed and suggest a bottom is in place. Look to buy dips to a slow rise back to the highs at 79.80
The DAX is showing a nicely formed rally and prices are now testing the upper end of the symmetrical triangle seen on the weekly charts. At this stage an upside break is expected, given the break through Fibonacci resistance previously. Buy dips into 6540.