Equities around the world slipped back from multi-month highs as disappointing Japanese GDP data offered a reminder of the challenges facing global growth.
The FTSE All-World equity index fell 0.3 per cent as US stocks wrapped up their first declining session in seven days, and closely tracking the FTSE Eurofirst 300, which had earlier also slipped 0.4 per cent.
News from Tokyo appeared to be the main factor at work. Japan’s economy grew at an annualised 1.4 per cent in the second quarter, against analysts’ expectations of a 2.3 per cent rise, leading some economists to forecast worse to come.
“With the external economy weak and private demand fragile, GDP is likely to contract in the third quarter as government support fades,” said David Rea at Capital Economics.
But investor appetite for yen-denominated assets seemed little affected. The yield on the benchmark 10-year Japanese government bond slipped 1 basis point to 0.78 per cent, while the Nikkei 225 stock index lost just 0.1 per cent.
Global equity indices had been grinding higher in recent weeks, supported by the belief that central banks stand ready to offer support if needed.
That has been typified by the S&P 500 in the US, which closed last week less than 20 points short of a four-year high following five successive weeks of gains that came in the absence of any compelling economic data.
But along with the Japanese growth data, a downward move for Shanghai’s Composite index yesterday showed the danger of investors relying on central bank largesse. The benchmark Chinese index has sat out the summer global stock rally, but perked up last week amid hopes that the People’s Bank of China might deliver a weekend policy stimulus in response to poor trade data for July.
When no intervention materialised the index fell 1.5 per cent, taking it back towards its lows for the year.
Some in the markets also suggested the outperformance of US stocks could soon be challenged.
“When you consider that the world ex-US is already seeing reporting profits fall by 9 per cent year-on-year in dollar terms, and dollar strength is likely to be a considerable headwind for US companies going forward … it is easy to argue for a short-term pullback,” said Andrew Lapthorne at Société Générale.
Elsewhere in equity markets the S&P 500 fell 0.1 per cent, but it still closed above the 1,400 level.
Despite a soft day for global equities, among currencies the euro fared well.
The single currency climbed 0.5 per cent against the dollar to $1.2335.
Sterling was flat against the dollar at $1.5691 despite a call from an outgoing member of the Bank of England’s rate-setting committee for further unorthodox monetary accommodation to spur growth in the UK.
The Japanese yen slipped just 0.1 per cent against the dollar to Y78.34.
In the bond markets, the yield on the 10-year US Treasury reversed earlier declines and rose 3 basis points to 1.66 per cent.
The German Bund yield, however, rose 2bp to 1.40 per cent
Spain’s 10-year bond yield fell 6 basis points, but remained close to 7 per cent.
Two-year borrowing costs, which provide a better measure of Madrid’s ability to borrow in the short term, climbed 7bp to 4.27 per cent. Italian yields were little changed.
In commodity markets Brent crude oil touched a three-month high above $115 a barrel, on geopolitical and supply concerns.
But the lack of accommodative policy from Beijing appeared to knock other growth-sensitive assets. Copper, for example, fell 1 per cent to $3.36 a pound. Gold edged below $1,610 an ounce after climbing 1 per cent last week.
20th August 2012
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[...] 14th August, global growth concerns re-ignited, but then the day after, investors quickly regained their confidence as hopes of further QE [...]