European Stocks Consolidate Ahead of Thursday’s ECB Meeting

European stock markets are slightly down, following a mixed session in Asia, where Hang Seng and CSI underperformed as Chinese GDP numbers came in broadly in line with expectations, but also showed an unbalanced economy with construction boosting growth amid a rise in debt. A stronger Yen weighed on Japanese bourses, while a weaker Sterling failed to give the FTSE 100 a lasting boost. In the Eurozone the Spanish IBEX managed to post a slight gain, but overall markets remain cautious ahead of tomorrow’s ECB meeting, with Draghi under pressure to manage expectations about any follow up to the current QE program, which runs out in March next year.

Chinese GDP increased by 6.7% year over year, in line with expectations. On a quarterly basis, it grew 1.8% which was also in line with expectations. Property investment growth increased to 7.8% year over year, and property sales rallied 34%, and new construction starts fell 19.4%. Consumption contributed 71% of GDP growth in the first three quarters of the year, compared with 66.4% for 2015.

It appears that German refinancing costs increased at the 30-year auction. Germany sold EUR 0.851 billion of 30 year bonds, with bids for the EUR 1 billion on offer amounting to EUR 1.438 billion leaving the official bid to cover ratio at 1.7, up from 1.5 at the previous auction. Taking the Bundesbank’s retention into account the real bid to cover was 1.4, up from 1.3 on July 27, when the paper was last issued. The average yield rose to 0.64% from 0.45% on July 27.

The Bundesbank’s Dombret declined to comment on Deutsche Bank but seemed to express his confidence in the German banking sector in general while saying that there is a strong interest in sustainable bank profits. He also called for a finalization of Basel 3 to end uncertainty.

Eurozone construction output fell 0.9% m/m in August, leaving the annual rate up 0.9% year over year, down from 4.1% year over year in the previous month. Disappointing numbers, although production data already indicated that the timing of the summer holidays led to some distortions and recent confidence data suggests that the overall trend is picking up again. The construction sector in particular should remain underpinned by low interest rates and rising house prices in many areas.

The UK September claimant rate rose 0.7k versus the expected 3.0k gain, while the claimant count rate was unchanged at 2.3% from an upwardly revised 2.3% rate in August. The lagging August unemployment rate was unchanged at 4.9%, while average household income in the three months to August came in with a 2.3% year over year rise in both the ex-bonus and with-bonus figures, perkier than the 2.1% median forecast in the case of the ex-bonus number. Inflation, which leapt to a 22-month high of 1.0% in September, is expected to soon exceed income growth and put a squeeze on many household.

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