European markets unmoved by new US growth figures

European stock and currency markets were little moved yesterday by reports of lackluster US growth in the third quarter.

Trading was cautious as investors awaited a meeting November 3 of US Federal Reserve policymakers, where additional stimulus measures to spur economic recovery could be announced.

US exchanges too showed no pronounced reaction to a keenly awaited report from the Commerce Department, which showed that US gross domestic product grew at an annual rate of two per cent in the third quarter, up from 1.7 per cent the previous quarter and offering some hope for the recovery.

The figure matched the consensus forecast of 2.0 per cent.

Other US economic indicators were mixed. A survey conducted by the Institute for Supply Management showed business activity in the Midwest grew more than expected this month.

But according to another survey, prepared by the University of Michigan, consumer sentiment dropped in October to its lowest level in nearly a year.

In London the FTSE 100 index was down 0.05 per cent to 5,675.16 points at the close while in Paris the CAC 40 fell 0.03 per cent to 3,833.50. The Frankfurt the DAX edged up 0.09 per cent to 6,601.75 points.

Elsewhere in Europe, there were declines of 0.27 per cent in Milan, 0.26 per cent and 0.19 per cent on the Swiss Market Index. In Madrid, shares rose 0.55 per cent on the day.

On the currency market the euro lost ground against the US unit, trading at 1.3896 dollars against 1.3929 on Thursday as the modest US growth performance dampened investor appetite for riskier assets, such as the single currency.

The dollar meanwhile fell to 80.48 yen from 80.98 on Thursday.

On Wall Street the Dow Jones Industrial Average was down 0.21 per cent to 11,090.45 at mid-day, when the tech-heavy Nasdaq had added 0.04 per cent to reach 2,508.39.

“The economy is doing as well as possible but that is not good enough,” said economist Joel Naroff of Naroff Economic Advisors.

He said slow growth and low inflation in the United States “is likely to convince the Fed it should go forward with plans for quantitative easing (QE).”

QE refers to an expected move by the US central bank to inject more liquidity into the economy, most likely through the purchase of bonds and other assets.

That course of action would probably dilute the value of the dollar while being welcomed by stock market players. But in recent days, in response to positive macroeconomic signals, there has been speculation that Fed intervention might not be as extensive as had been anticipated.

“The Fed seems to be hinting at an incremental programme, perhaps lasting six months, but which could be extended depending on the news flow,” said James Knightley of ING bank.

“Consequently, while the market may be disappointed by a ‘small’ figure announced for QE, the actual end result could end up being far higher.”

Earlier yesterday Asian markets mostly fell due to wariness about the US and Japanese economies.

Tokyo’s Nikkei index closed down 1.75 per cent, Sydney ended 0.50 per cent and Seoul fell 1.31 per cent.

Hong Kong closed down 0.49 per cent and Shanghai 0.46 per cent.