The FTSE 100 edged forward this morning, as strong Chinese growth data was offset by further worrying news from Europe, helping to keep gains limited.
The Chinese growth data came in as predicted yesterday by economists in Hong Kong. While ongoing strong growth is good news for the global economy, surging inflation will raise fears about zealous monetary tightening efforts by the Chinese government that could hurt miners, commodity prices and riskier currencies.
China's economy powers ahead
Once again, Chinese growth has put everyone else in the shade. The world's second-largest economy grew by more than forecast in the first quarter of the year, while inflation hit its highest level in almost three years as prices defied government attempts to bring them under control. GDP growth for the first three months of 2011 was 9.7%, ahead of the 9.4% expected. Consumer prices gained 5.4% in March compared to last year, a significant jump compared to the 4.9% seen in February.
Beijing has engaged in six months of tightening efforts, lifting benchmark interest rates four times and raising the bank reserve ratio requirement (the amount of deposits that banks must hold in reserve) six times. In addition, the government has resorted to more direct methods, such as price controls in the food sector and limits on property purchases. Tightening efforts will continue apace, but the task is made more difficult by higher commodity prices, which have been boosted by two years of massive bank lending that has left the Chinese economy almost drowning in cash. The sense of nervousness in Beijing is becoming almost palpable, with the Chinese nomenklatura (the administrative elite) acutely sensitive to the possibility of popular unrest arising from unrestrained growth in food prices.
Eurozone woes
And from a booming economy to a moribund one; Greece will unveil new austerity measures later today in order to try and revive investor faith in the country. The plans will include even greater privatisation efforts and spending cuts, as part of its aim of cutting its budget deficit from 10% to 1% by 2015.
Elsewhere in Europe, the after-effects of the sovereign bailout continue to be felt. Ireland saw its credit rating cut by Moody's hours before the announcement of revised bailout terms. The rating was cut by two notches to BAA3, the lowest investment grade, with Moody's saying that the growing debt burden and weak economic growth threatened measures to cut the nation's deficit. However, it added that an Irish debt restructuring was not a likely outcome. In Finland, the eurosceptic True Finn party looks likely to secure a far larger share of the vote than before, with the party poised to take second place in elections on Sunday. The True Finns have pledged to veto any increase in Finnish contributions to the bailout of other European nations, which would put further rescue packages in doubt.
UK equites – Banks, Ladbrokes & 888, Salamander Energy
By 10.30am (London time), the FTSE 100 was 5.44 points (0.09%) higher at 5969.24 and the FTSE 250 had advanced 29.47 points (0.25%) to 11632.66.
The eurozone problems hurt the banking sector, with all five major banks posting losses. RBS and Lloyds were the heaviest fallers, down 1.3% and 1.14% respectively.
Talks between betting firms Ladbrokes and 888 Holdings have ended, following almost five months of negotiations. Ladbrokes had been expected to offer up to £240 million for 888. Ladbrokes also released a trading update today, which showed an improvement in business towards the end of the first three months of the year. Overall net revenue (excluding high rollers) was up 2.3%, despite a disappointing performance at the annual Cheltenham festival. Ladbrokes rose 4% to 140.4p while 888 shares dived 10% to 37.46p.
Salamander Energy dropped 7% to 291p after news that drilling operations off Thailand had been unsuccessful. The Dao Ruang-2 well did not manage to sustain a commercial flow rate. Drilling will now move to the second planned location.
US pre-market
June futures for the Dow and S&P 500 are both down 0.3%, indicating a poor start for Wall Street this afternoon. US March CPI data is published at 1.30pm, with core month-on-month price growth expected to remain steady at 0.2%. At the same time, the Empire manufacturing index is released, and this is forecast to edge back to 17 in April from 17.5. Treasury inflows are published at 2pm, while industrial production is out at 2.15pm and the University of Michigan consumer confidence index reading is announced at 2.55pm (all London time). This last is expected to show an increase to 69 in April from 67.5.
