The unqualified progress that characterised markets in the last few days has run out of steam, and as the week winds down we are left twiddling our thumbs after a fairly uninspiring session. With tapering concerns diminished, traders have found something else to worry about – namely Chinese GDP. This still shows that people refuse to believe the strength of the rally, preferring to fear the worst and see the downside in all things.
The FTSE 100 has been unable to make up its mind today, moving higher in the direction of 6600 and then backing off lower again. Going into next week we could see some weakness in the near term, particularly if Chinese GDP disappoints. Miners are dropping back slightly today, but the ugly downtrends in the sector we have seen this year could easily come back if growth slows in the world’s second-largest economy.
Bid talk has failed to enliven markets in London, but it looks as if Invensys is to disappear off into the tender arms of Schneider Electric, with a counter-bid probably only a distant possibility. At 505p per share investors should probably be satisfied with this, given the worries that have attended the company over its pension fund.
Bank earnings have got off to a reasonable start in the US, with JP Morgan and Wells Fargo surpassing estimates. In the months to come the banks will be in the front rank of those affected by shifting expectations about US Federal Reserve policy, and Ben Bernanke may be married to low interest rates for an extended period, that won’t stop markets trying to second guess the Federal Open Market Committee’s next move. With Wall Street back in record-high territory, investors can be forgiven for feeling nervous, but the outlook still looks better for the US economy than it has for some time yet.
Signals from the Chinese finance ministry, that further economic weakness in the world’s second biggest economy is inevitable, have caused copper prices to decline from the highs seen yesterday in the aftermath of a dovish Fed chairman. The stronger dollar today, along with the anticipation of a disappointing second quarter GDP figure for China on Monday, is likely to pre-empt lower demand and weigh further on the base metal.
The Australian dollar has fallen out of bed again, dropping back towards the $0.90 level as China GDP worries take centre stage. Having enjoyed the benefit of its close relationship with China, Australia will now be ruing its geographical positioning, as it sees demand for raw materials drop off again.