European stock markets closed easier yesterday after news that the Japanese economy had slowed to a virtual halt in the second quarter stoked growing fears that the global recovery is faltering badly.
Dealers said the Japanese figures, following on from very disappointing US data, pointed to a significant slowdown ahead – the question now being whether some growth can be maintained or was another recession on the cards?
A weak reading for manufacturing in the New York area added to the negative tone but major merger and acquisition news in London provided some support.
In London, the FTSE 100 index of leading shares closed flat at 5,276.10 points. In Paris, the CAC 40 shed 0.37 per cent to 3,597.60 points but in Frankfurt the DAX was unchanged at 6,110.57 points.
Elsewhere in Europe, Amsterdam lost 0.24 per cent, Brussels dropped 0.65 per cent, Madrid was off 0.17 per cent, Milan slipped 0.31 per cent and Swiss stocks were down 0.14 per cent.
Earlier in Asian trade, Tokyo lost 0.61 per cent but Hong Kong added 0.19 per cent after Shanghai bounced 2.11 per cent. Sydney shed 0.47 per cent.
The Japanese economy expanded 0.4 per cent in the three months to June, its slowest pace in the previous three quarters as an export-led recovery slowed sharply due to crumbling demand at home and abroad. In the first quarter, Japan grew 4.4 per cent and economists had expected a gain of 2.3 per cent in the second.
“The report in Japan, while not entirely unexpected, is only further serving to reinforce global growth concerns,” analysts at Briefing.com said in a note.
Dealers said London got some help after Vedanta Resources agreed to acquire a majority stake in energy explorer Cairn India for up to $9.6 billion (€7.5 billion) in cash, adding to its core mining business.
“The proposed acquisition significantly enhances Vedanta’s position as a natural resources champion in India,” Vedanta’s tycoon owner Anil Agarwal said.
Vedanta shares jumped 4.87 per cent and Cairn Energy gained 5.32 per cent.
Adding to the mix, British insurer Aviva rejected a takeover bid for part of its business from rival RSA worth £5 billion (€6 billion) in cash.
Aviva was down 2.45 per cent and RSA dropped 2.28 per cent.
In New York, the blue-chip Dow Jones Industrial Average was fractionally higher, gaining 0.07 per cent at around 1600 GMT after trading in a narrow band while the tech-rich Nasdaq Composite index added 0.56 per cent.
“The focus in early Wall Street action is the weaker-than-expected report on Japanese gross domestic product and... the New York Fed’s Empire State manufacturing index,” said Joseph Hargett, an analyst at Schaeffer’s Investment Research.
While business conditions improved slightly in August for New York manufacturers, new orders and shipments indices fell below zero for the first time in more than a year in another worrying pointer for the economy.