A stark divergence is splitting European markets on Thursday, as bourses in Germany and France push higher while London’s FTSE 100 falters, unable to capitalize on better-than-expected domestic growth data.
The hesitant mood comes as investors digest a flurry of economic reports ahead of another crucial inflation reading from the United States that could sway the Federal Reserve’s next move.
Half an hour into the session, the pan-European Stoxx 600 index has gained a respectable 0.2%, with most sectors in positive territory. The German DAX and France’s CAC 40 are both trading around 0.3% higher.
In stark contrast, London’s FTSE 100 is down 0.2%, retreating from the record-setting rallies seen earlier in the week.
A hollow victory for UK growth?
The weakness in London is particularly notable as it comes on the heels of seemingly positive news.
The UK economy expanded by 0.3% in the second quarter, according to preliminary data from the Office for National Statistics, comfortably beating the tepid 0.1% growth forecast by economists in a Reuters poll.
Yet, the market’s reaction was to sell, not buy. Beneath the headline number, the data reveals a more complex picture of an economy still struggling to find its footing.
While month-on-month growth rebounded to 0.4% in June after a contraction in May, analysts point to persistent weaknesses that are spooking investors.
George Brown, a senior economist at Schroders, told CNBC that the slowdown from the first quarter’s bumper growth reflected a drop in manufacturing following tariff-related frontloading.
“This drag should ease in the third quarter, even against a tougher global trade backdrop,” he said.
Still, hopes of a sharp rebound are likely to be dashed. The labour market has softened, and capacity constraints mean even tepid growth is generating inflation pressures.
The pound reflected this mixed picture, slipping from its initial post-GDP high to trade just shy of $1.36, even as it hit a one-month high against the euro.
A sobering report from Carlsberg
The cautious consumer mood underlying the UK data was echoed in the corporate world. Danish brewer Carlsberg on Thursday reported weaker-than-expected second-quarter sales, citing a dip in volumes.
The world’s third-largest brewer posted revenues of 25.7 billion Danish kroner ($4 billion), missing the 26.4 billion forecast by analysts in an LSEG poll.
CEO Jacob Aarup-Andersen blamed a consumer “spending pause” that was weighing on the business.
In an interview on CNBC’s ‘Squawk Box Europe,’ he stated, “The volumes do not flow in the way they did a couple of years ago.”
In a sign of resilience, however, the company raised its full-year profit guidance, pointing to strength in its premium and alcohol-free offerings, which are helping to offset the volume decline.
As these domestic stories play out, the global backdrop remains dominated by the wait for more US inflation data.
The producer price index, due Thursday, is the next major piece of the puzzle for investors trying to gauge just how aggressively the Federal Reserve might cut interest rates in September.
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