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Weak China data hits stocks, stimulus still eyed

August 10, 2012


“Despite what the ECB is saying, you're seeing risk sentiment reverse,” said Lucy Lillicrap, senior risk consultant at global payments company AFEX Markets Plc in London. - File photo


NEW YORK: Global shares lost momentum on Friday, falling for the first time in five days, on weak Chinese trade data, though declines were limited by expectations policymakers could act to shore up the world's economies.

Stock markets' recent rally has been underpinned by comments by European Central Bank President Mario Draghi two weeks ago that the central bank was “ready to do whatever it takes to preserve the euro,” raising hopes of heavy bond buying to aid Spain and Italy.

A weaker-than-expected reading in China's July exports on Friday, however, soured the mood. In addition, new bank loans in China were at a 10-month low, suggesting pro-growth policies have been insufficient and that more urgent action may be needed.

The weakness in exports included a 16 per cent drop in sales to Europe from a year ago.

“The data from China is concerning because the global economy is still the backdrop for the market. People are still very cautious because of the global growth concerns,” said Paul Brigandi, vice president of trading at Direxion Funds in New York.

Some economists said the Chinese central bank could move as early as this weekend to ease policy.

US stocks were modestly weaker in early afternoon trade, while the data also dampened the euro.

“The data was not bad, it was horrendous,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

“After these numbers, investors may want to see (stimulus) activity fairly quickly, especially from the ECB.”


Equities markets were kept in check as the euro zone's outlook remained in limbo.

Next week, second-quarter gross domestic product data is expected to show the euro zone economy contracted.

Hopes are high that the ECB will step in with bond purchases to ease borrowing costs for Spain and Italy. But until details emerge - including the strings attached to any support - investors will be wary.

The euro struggled against the dollar as investors took a cautious stance. The currency slid 0.1 per cent to $1.2291, off a one-month high of $1.2443 struck on Monday and falling to a one-week low of $1.2239.

“Despite what the ECB is saying, you're seeing risk sentiment reverse,” said Lucy Lillicrap, senior risk consultant at global payments company AFEX Markets Plc in London.

The FTSEurofirst 300 index of top European shares ended down 0.1 per cent, while the MSCI's world equity index was off 0.2 per cent.

The Dow Jones industrial average slipped 23.23 points, or 0.18 per cent, to 13,141.96. The Standard & Poor's 500 Index eased 2.70 points, or 0.19 per cent, to 1,400.10.

The Nasdaq Composite Index was off 8.94 points, or 0.30 per cent, to 3,009.70.

“After such a rally, people are tempted to book a bit of profit. It's just healthy, investors are catching their breath,” said Isabelle Enos, deputy head of asset management at B*Capital, in Paris.

In New York, shares of soccer club Manchester United were flat on their first day of trading. The stock was near its offer price of $14.

US Treasury debt prices benefited from investors looking for safety and the benchmark 10-year US Treasury note traded 11/32 higher in price to yield 1.66 per cent.

Fears of a new world food crisis were heightened on Friday by a US government report that showed domestic and soybean crops have been slashed even more than expected by the worst drought in half a century and will fail to replenish ultra-low stockpiles.

Corn prices briefly touched another record high before easing after the report said the soaring cost of the grain would hit demand.

CBOT December corn was down 0.6 per cent at $8.19 a bushel after setting an all-time high of $8.49.

Oil markets were lower after the International Energy Agency cut its demand forecasts for next year and said crude stocks were rising.

Brent crude fell 38 cents to $112.84 a barrel, while US crude was down 79 cents at $92.57.