Europe down on profit-taking, markets await US GDP
LONDON -- European stock markets fell modestly Friday amid some profit-taking following the previous day's big rally as investors awaited a key U.S. economic report that could provide insight as to when the world's largest economy will start growing again.
Analysts also said that the end of the month would also likely complicate trading over the session -- investors often use the month-end to book any profits accumulated.
By midmorning London time, the FTSE 100 index of leading British shares was down 6.85 points, or 0.2 percent, at 4,624.76 while Germany's DAX fell 17.38 points, or 0.3 percent, to 5,343.28. The CAC-40 in France was 6.28 points, or 0.2 percent, lower at 3,429.21.
European markets, like those in the U.S. and Asia enjoyed hefty gains over the previous 24 hours as investors warmed to a string of positive earnings reports around the world that fueled hopes that the worst of the global recession was over and that companies were positioning themselves for an imminent upturn.
Investors will be focusing on the first estimate for second quarter U.S. gross domestic product -- many analysts predict shrank at an annualized rate of 1.5 percent, a vast improvement from the 5.5 percent recorded in the prior three month period.
"There is no doubt that the headline act will be the U.S. GDP numbers, a number that undoubtedly has the potential to cause a stir on the last day of the trading month," said Jimmy Yates, head of equities at CMC Markets.
"A weaker number here could set the tone for August and show us that we still have a long way to go before we start seeing growth in the worlds largest economies," he added.
Because the figures are released before Wall Street opens, analysts said futures markets could be volatile in the hour before trading starts. At the moment though, Dow futures were up 24 points, or 0.3 percent, at 9,114 while the broader Standard & Poor's 500 futures rose 1.5 points, or 0.2 percent, to 983.70.
Stocks have rallied for much of July, with many of the world's leading indexes hitting their highest levels this year, on mounting optimism about the outlook for the world economy after a large chunk of the corporate earnings released have outperformed market expectations.
Instead of being driven by psychological factors such as fear, there are hints that investors have begun to look at the traditional fundamental factors -- how much is a company earning and when will economies around the world start to grow.
"Policymakers have helped reduce systemic risk in the financial system and investors can focus more on the traditional concerns of economic data flow and earnings potential," said Neil Mackinnon, chief economist at ECU Group.
Earnings releases so far Friday have been fairly mixed.
French drinks company Pinault-Printemps Ricard SA posted better than expected earnings and saw its share price jump 8.7 percent in early trading while shares in building materials firm Lafarge SA slipped 3.3 percent after lowering its outlook for 2009 cement sales.
Meanwhile, British Airways PLC managed to be the biggest riser on the FTSE 100 -- up over 4 percent -- even though it posted a 94 million pound ($155.5 million) quarterly loss -- its first since being privatized in 1987 -- and warned of "no visible signs of improvement" in the recession-hit airline industry. Analysts said investors gave the company the benefit of the doubt as they focused on its ongoing cost-cutting and debt reduction measures.
Earlier, every major Asian market turned higher with Japan's Nikkei 225 stock average gaining 191.62 points, or 1.9 percent, 10,356.83. Investors were seemingly unfazed by news the country's unemployment rate hit a six-year high in June of 5.4 percent, threatening to stall a recovery in the world's second-biggest economy.
Chinese shares continued to recover after tanking Wednesday amid fears the government would constrict liquidity. The Shanghai benchmark jumped 2.7 percent to 3,412.06. Hong Kong's Hang Seng added 1.7 percent to 20,573.33.
Oil prices fell modestly after big losses Wednesday were more or less recouped in the following session. Benchmark crude for September delivery dropped 64 cents to $66.30.
The dollar was steady at 95.60 yen while the euro rose 0.2 percent to $1.4096.
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