Equity rally stalls as German data casts cloud over global growth

LONDON (Reuters): Global stocks traded just off three-week highs on Thursday after unexpectedly weak trade and machinery orders data from Germany and Japan hinted at a stalling in the momentum of some of the world’s biggest economies.

An oil price bounce, a flat dollar and gains in Chinese markets provided some support, but with worries growing over Germany and the U.S. Federal Reserve due to release minutes of its last meeting, investors were wary of extending world shares’ six-day rally any further.

“Risk-on week continues, but it’s not a one-way street,” Societe Generale analysts told clients.

While some beaten-down assets in emerging markets and commodities could continue to rally, there were risks to the broader picture, they said. “The weakness in the global economy and deleveraging process in emerging markets will continue to weigh on risky markets,” they added. MSCI’s all-country equity index was flat after rebounding 7% since last Friday when weak US jobs data led to expectations that the first Fed rate rise in almost a decade would be delayed into next year.

The doubts about the state of growth in the developed world reared their head again as Japan’s machinery orders fell in August by 5.7%. The data bucked expectations of a rise, indicating capital expenditure remains weak and undermining hopes of an inflation pick-up

The data took Japanese stocks around 1% lower while the yen was dampened by expectations the Bank of Japan might have to resort to more money-printing.

Europe’s growth engine Germany too has been displaying alarming signs. Just a day after data showed industrial output dropping 1.2% for its steepest fall in a year, German exports plunged 5.2% in August for their biggest monthly decline since the height of the global financial crisis.