China data weighs on FTSE despite US upgrade

The Asian demand outlook for basic resources has kept a firm cap on any real upside in the UK benchmark today, with the tight range trading session never venturing too far from the pivotal 6400 level.

European markets

The continued slowdown in the Chinese economy including a lower money supply, worse-than-expected industrial production, flat retail sales and lower inflation figures meant that the heavily-weighted mining index was unable to capitalise on the raised US outlook from credit ratings agency Standard and Poor's.

ITV held on to the top spot all day, adding over 3.7% on a broker upgrade. Severn Trent has seen better days, losing 5.6% on news that the water supplier had rejected a third takeover proposal from international investors Long River. Invoking the power of positive thinking, French president Francois Hollande stated today that the ‘eurozone crisis is over’. Certainly bond yields in much of Europe have clambered off their highs, yet further confirmation that Italy remains mired in recession came today in the form of a year-on-year drop of 4.6% in industrial production for the country. Such a statement may be premature.

The Bank of Japan will update the markets on future monetary policy tomorrow. A weaker yen as a result of a better-than-expected revised GDP number for Q1 saw the Nikkei bounce back from the overall bearish trend overnight. Given the renewed significance lent to Asian trade currently here in Europe, a reiteration of the present aggressive monetary tactics should offer a degree of support to current market levels.

US markets

Like their European counterparts, US stocks got a mild boost from the S&P stable US outlook. A lack of economic data meant that the trading range was also rather shallow and with only Fed member James Bullard giving a fairly neutral speech on future monetary policy, markets look set to trade sideways for now.

The global penchant for fast food is helping to keep the Dow above the flat line, with McDonald's the biggest gainer on news that global sales rose 2.6% in May. The Dow is currently trading up 4 points at 15,252.

FX

The US dollar was the big outperformer today, recovering some of last week’s losses owing to the weaker yen and the S&P credit outlook upgrade. The dollar/yen pair saw trade poke above the 99 yen precipice for a short time today, while the BoJ statement tomorrow is not expected to herald any surprises. The continued loose monetary policy should be bearish for the Japanese currency, at least in the short term.

Given that the German Federal Constitutional Court is due to announce a ruling tomorrow on the legality of the prospect of Outright Monetary Transactions (OMT) from the ECB, the euro as a result has struggled for direction given the uncertain outcome. In all likelihood, we will not have huge clarity until after the German elections in September.

Commodities

Brent oil prices remain restrained by both surplus inventories and the lower global demand outlook. The $105/bbl level remains pivotal with oil failing to make any headway above this level in over a month. For now, we see the commodity trading in a fairly tight range and finding support at the 50-day moving average.

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