Despite the fact that the China growth figure represents an extension of the overall slowing trajectory, being the ninth slowdown in the past ten quarters, equity markets seemed broadly relieved that the GDP for Q2 was simply in line with expectations of 7.5%. There is a concern that the upward flight of the UK benchmark is made of feathers and wax, particularly ahead of Fed chairman Ben Bernanke’s testimony later this week, with traders rather wary of the 6600 level which remains a hot barrier between current levels and this year’s highs.
The financial sector has dominated the FTSE 100 today, boosted by news that Commezbank is to sell £5 billion worth of British property loans to US rival Wells Fargo. RBS was the clear outperformer on the day, adding over 4%. This brings the total share price gains on the state-owned bank since the 3 July lows to 19%. Sage Group took the bottom spot, losing 3.6%, as Morgan Stanley reiterated its equal stance on the company share price.
A higher open on Wall Street helped by a surge in earnings from Citigroup, which showed a 42% year-on-year rise in net income for the three months to the end of June, meant that even the weak retail sales number could do little to curb investor enthusiasm. The Empire State manufacturing index was also a boon for the bulls, coming in at its highest level since February at 9.5, well ahead of expectations for a print of 5.2. Given that consumer spending is the lynchpin of the US economic story, the weak 0.4% gain in retail sales, which was mainly on the back of a jump in automobile purchases, could well be problematic for the economic recovery.
The volatility index, or the ‘fear gauge’ as it is more widely known, has declined by 16% over the past seven days. This implies that investors feel that market volatility is receding fast and can be construed as bullish for equities. We await Ben Bernanke’s testimony in spite of this perceived complacency. The Dow is currently trading down ten points at 15,474.
Commodity currencies, the Aussie dollar and Kiwi have outperformed other G10 currencies, both catching a bounce against the greenback owing to the relief surrounding the Chinese GDP data. Minutes from the Reserve Bank of Australia are due out early tomorrow morning, and as the bank did not lower interest rates at the last meeting any dovish indications could well undo all the gains seen today.
Copper, not to be fooled by media spin, appears to be moving in line with the actual Chinese growth pictures and has failed to make any gains today, instead adding to the losses sustained since late last week. The dollar's strength has also conspired to keep much of the commodity complex capped. The strong dollar and $1300/oz level is a mote too far for gold traders. A move through $1303/oz is likely to set the price on a trajectory for $1330, while any breach of $1266 opens a path for a return to $1250.