FTSE 100 hurt by triple whammy of economic data

A flurry of economic data sees investors take a more cautious stance this morning.


China's slowing export growth is piling the pressure on Beijing

The FTSE 100 fell in early trading this morning, with investors spooked by a triple-whammy of economic data.

In early action, the FTSE 100 was down 37.23 points to 6,705.61, with the FTSE 250 off 9.58 to 15,993.3.

The first bit of bad news came from China, with official data showing that the country's trade surplus expanded in November, exports grew at a much slower rate of 4.7%. At the same time imports fell unexpectedly, declining 6.7% year-over-year the biggest drop since March.

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Jasper Lawler, analyst at CMC Markets, says the data further fuels fears that the world's second-largest economy could be facing a sharper slowdown than anticipated, adding pressure on Beijing to ramp up stimulus measures.

The bad news from China was compounded by a bigger than expected Japanese contraction in the third quarter. Reuters says the revision to an annualised 1.9% contraction from a preliminary 1.6% fall confirmed Japan slipped into recession. The reading confounded the news agency's own poll projecting a 0.5% contraction.

Lawler says the economic numbers demonstrates the constraints that Asia's two largest economies are putting on global growth and investor sentiment.

He adds: "The lower GDP revision reaffirms Prime Minister Abe's decision to seek a new mandate with snap elections, after which he is likely to try to expand his 'Abenomics' programme to try and pull Japan out of its economic woes."

The data from China and Japan will increase scrutiny of the eurozone economy and prospects of full-blown quantitative easing (QE) for the region.

Lawler says: "Initial disappointment over the lack of stimulus from last week's ECB [European Central Bank] meeting was quickly washed away, since it's clear that any action taken by the ECB would have indicated little confidence in the measures already taken, including the long-term refinancing operations, the results of which are expected this week."

This morning there was more negative economic data, with German industrial production increasing by just 0.2% in October versus expectations of 0.4% growth. September's production data for the country was also revised down to show an increase of 1.1%, compared to an initial 1.4% estimate.

In early corporate action, Sainsbury's was in demand, rising nearly 1% to 240.5p, on takeover speculation. Over the weekend, TheSunday Telegraphreported that activist fund Crystal Amber is looking to build a stake in Sainsbury's "as part of a bold plan that could see an attempt to engineer a takeover of the supermarket giant".

In commodities, crude oil prices remain under pressure. Overnight in Asia, Brent Crude fell to $67.73 a barrel, close to last week's low of $67.53, which itself was a five-year low.

Elsewhere, the BBC reports the Bank of England's (BoE) view that the majority of people with mortgages could cope with a rise in interest rates.

Just 4% of mortgage holders would need to take action if interest rates rose to 2.5% from their current 0.5% historic low, according to the Bank's annual survey of household finances.

However, the BoE's calculation assumes a 10% rise in household incomes. If incomes do not rise, 37% of mortgagers would need to act in response to a rate rise, says the report.

The BBC's economics correspondent comments: "When economists warn about what will happen when the Bank of England raises interest rates, it can be made to sound like economic Armageddon.

"But it's worth remembering only a third of households actually have a mortgage. Among them, evidence shows, it's people who spend more than 40% of their pre-tax income on debt who start to fall behind."

Kam Patel

Kam is a former deputy editor at Hemscott Invest and online editor, City A.M and he was also previously the Digital Editor at IFA Magazine. Kam is currently a senior journalist at The Global Treasurer and contributes to MoneyWeek. Kam shares expertise on the FTSE 100, investing and global stocks.