European Market Review – Friday, 20th August 2010

Europe in Red As Global Slowdown Lingered

German DAX fell 1.2% and London’s FTSE index slipped 0.3% on Friday as concerns over global economic slowdown extended selling among European shares. At the end of the day, DAX stood at 6,005.16 while FTSE settled at 5,195.28. Anxiety over global slowdown has been the recurrent theme in the market lately and it still is in the near-term. Disappointing data coming from US, in addition to cooling off of China have raised worries over more likely odds of the ‘second-dip’.

Among European stocks, GlaxoSmithKline managed to buck the trend as it gained 1.34% and settled at £1,206.50. Another one escaping from the red zone was BP Plc that ended slightly higher at £388.35. At the bottom, BMW, Prudential and Allianz shed 2.26%, 2.19% and 2.12%, respectively.

European carmakers are vulnerable to global slowdown especially from China as the most populous country in the world’s economy decelerated recently. In addition to BMW, shares of Daimler and Volkswagen fell to €39.23 and €72.03.

Elsewhere in the Europe’s 2nd largest economy, France has cut its growth forecast to 2% for 2011 against prior forecast of 2.5%, in anticipation of the budget cut being prepared by the government.

Week Ahead

As no economic data came out of US on Friday, the market will anticipate next week’s data coming out of Europe. These include PMI data for August, both for manufacturing and non-manufacturing sectors. Data will be for Euro-zone area, France, and Germany. Consensus sees slowdown from July’s index.

GDP will grab the market’s attention as German GDP will be released along with UK and US GDP estimates. While no surprises are expected from the German and UK figures, US data will be significant as downward revisions have been expected since the latest data on widening international trade deficits. Next come the IFO index from German, as well as CBI trade data from UK, and German CPI.

IFO index is expected to show a decline in business climate in August, from 106.2 to 105.5. The current assessment index is seen to improve to 107.2 from 106.8 while the expectations index is forecast at 104.3, down from 105.5. Inflation data is seen to show a slowdown in inflation pressure in August. Month-on-month the preliminary CPI is expected at 0.2%, down from 0.3% in prior month. Annual CPI is seen at 1.1%, slowing down from 1.2%.