European stock markets are trading higher today by recovering some of their losses made yesterday. However, traders are cautious during the session ahead of the Federal Reserve’s meeting which is due next week. It is widely believed in the market that Ben Bernanke will maintain his well-written speech during which he will confirm that tapering is dependent on incoming economic data. The data released this week was mostly positive for the economy and was above the forecasted level. Moreover, a taper statement released from Jon Hilsenrath who is considered as an unofficial representative of Fed made headlines during the afternoon trading session in the US when he said Central Bank will maintain their asset purchase program during their next week’s meeting
However, there is also a fear about a China slowdown in the market and the recent announcements by Beijing is not entirely up to market’s expectation and it may be difficult to believe that China could maintain its GDP target of 7.5% for 2013 under the current policies. The country even announced a major cut in excess capacity in 19 industries for almost 1400 companies.
Most of these excessive capacity cuts were announced in Steel, Cement and Aluminum and there is a possibility to accelerate these cuts during the 2nd half of the year. This could clearly impact the country’s struggling GDP growth, and may be that was the reason that railway investment policy was announced by the government yesterday. The MNI’s survey which is the business sentiment survey in China is echoing the above argument by showing a lower reading of 51.3 during the month of July which is lower than the final reading of 53.7 in June.
On a positive note, the economic data released in Japan have given the much needed confidence to the government which showed that the inflation in the country has finally started to improve. The CPI figures released showed that the index has increased by 0.2% which was the first increase for the index during the past 13 months. However, the Central Bank of Japan has an inflation target of 2.0%, but a 0.2 % increase is an encouraging number for the country given that Japan is struggling with deflation in nearly over 2 decades. This could boost the government’s confidence for further stimulus for the economy.
Back in Europe, the FTSE 100 is trading up with some mild gain of 0.06% after the office for National Statistic released their final reading for GDP number. The data showed that the country’s GDP increased nearly by 0.6% which has sparked another hope for further stimulus package in the market. The Bank of England’s governor may be inclined to propose some sort of stimulus growth polices given that the country’s competitiveness is fading.
However, the currency market may not be buying this argument because if such was a case then the GBP could have dropped. But it is also true that the country is well below from its 2008 level which it has a GDP growth of 3.9%. Given the current GDP growth, it is only Italy which has performed that badly out of a bunch of G-7 countries. Therefore, Mark Carney may have to use some of his tools out of stimulus policies to boost the economy given the country has a GDP target of 1.1% for 2013 and forecasting that the country will return to its 2008 level by next which may seem an exaggerated statement.
The Euro, AUD and NZD are trending up against the dollar while the JPY, CHF, SEK and CAD are reversing their trend to the downside against the dollar.