European stocks mixed after gloomy German growth forecast

GMT 15:37 2014 Thursday ,09 October

Arab Today, arab today European stocks mixed after gloomy German growth forecast

European stock markets
London - AFP

European equities on Thursday initially tagged onto the coat tails of a Wall Street rally, but wobbled after downbeat data and a cut in the growth forecasts of Germany, the eurozone's economic motor.
At the same time, the Bank of England maintained its key interest rate at a record-low level of 0.50 percent with Britain experiencing low inflation and a steady economic recovery, in contrast to the gloomy outlook for the eurozone.
After an initial rebound at the opening following indications Wednesday the US Federal Reserve would not be raising interest rates soon, London's benchmark FTSE 100 index was down 0.32 percent in mid-afternoon trading to 6,461.57 points.
In Paris the CAC 40 dropped 0.56 percent to 4,144.69 points compared with Wednesday's closing level.
Frankfurt's DAX 30 index firmed up 0.49 percent to 9,039.39, maintaining the gains following the US rally the day before.
US stock markets had soared on Wednesday as minutes from the Federal Reserve's latest meeting indicated policymakers were nervous about raising interest rates too soon.
The minutes showed the central bank board aired worries about the stronger dollar, a stumbling eurozone economy, slowing growth in China and Japan, and geopolitical risks.
Earlier this week, both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) warned about a loss of momentum in the eurozone recovery as the German economic engine stalled.
Then on Thursday, four German economic institutes -- Ifo in Munich, DIW in Berlin, RWI in Essen and IHW in Halle -- said they saw the slowdown hitting Germany.
In their widely-watched half-yearly report they forecast that the German economy would grow by just 1.3 percent in 2014 and 1.2 percent in 2015.
That is much lower than the 1.9 percent and 2.0 percent they had previously expected.
And they argued instead of always trying to balance its books, Berlin should ramp up investment in the public sector as a way of reigniting the flagging economy.
That morose outlook for Europe's top economy sent the borrowing costs on 10-year bonds for Germany to a record low on the premise the European Central Bank will be forced to step up its measures to support the eurozone economy.
The yield, or rate of return, on German 10-year bonds struck a record low of 0.858 percent in morning trading.
French debt was trading at 1.236 percent, not far off the record low low of 1.203 percent it touched late on Wednesday. And for Spain, its 10-year bond yield  was at 2.060 percent after hitting a bottom of 2.030 percent during the trading day.
"The current indicators are not terrible and if Germany slows more, a lot of investors think that the European Central Bank will be pushed to be more active," said Jean-Francois Robin, a bond strategist at Natixis.
- Wall Street opens lower -
Adding to the eurozone gloom was data showing a sharp drop in exports from its two biggest economies, Germany and France.
German exports contracted by a massive 5.8 percent in August -- the steepest drop since January 2009 -- causing the trade surplus to shrink to 17.5 billion euros.
In neighbouring France, exports dropped by 1.3 percent, pushing the trade deficit up to 5.8 billion euros, the highest figure since January.
With the prospect of US interest rate hikes pushed back, the European single currency firmed at $1.2728 from $1.2734 late in New York late Wednesday.
The euro eased to 78.64 British pence from 78.77 pence on Wednesday, while the pound gained to $1.6179 from $1.6166.
The price of gold increased to $1,227.50 an ounce on the London Bullion Market from $1,217 on Wednesday.
The stagnating German economy and gloomy data led Wall Street to open lower on Thursday, with the Dow Jones Industrial Average down 0.35 percent to 16,935.52 points five minutes into trade.
The broad-based S&P 500 shed 0.28 percent to 1,963.33, while the tech-rich Nasdaq Composite Index lost 0.29 percent at 4,455.79.


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