Slower Chinese growth, European debt crisis anxiety expected to weigh on markets

U.S. futures indicated a negative session as the Dow Jones industrial futures lost 69 points to 11,232, the Nasdaq futures were down three points to 2,318 while the S&P 500 futures declined 7.5 points to 1,186.4.

Prices for oil and metals backed off as China’s rapid growth slowed slightly to a still-strong 9.1% during the third quarter, down from the previous quarter’s 9.5% and the lowest level in two years.

The government said that was in line with plans to steer growth that hit 10.3% last year to a more sustainable level and cool politically dangerous inflation.

However, a slowing Chinese economy is bad news for much of the rest of the world, which has counted on strong growth to help fuel a global economic recovery.

On a brighter note, analysts noted that the Chinese data at least lessened fears that the country’s economy is heading for a hard landing.

“Growth is clearly slowing in China, as policymakers have tightened up credit significantly to deal with inflation, but a sharp slowdown doesn’t appear to be in the cards,” said BMO Capital Markets senior economist Benjamin Reitzes.

Signs of faltering growth in China usually results in falling prices for commodities since strong demand from the world’s second-biggest economy has supported higher prices for oil and metals and in turn rising share prices on the resource-heavy TSX.

The November contract for crude on the New York Mercantile Exchange fell 75 cents to US$86.05 a barrel.

The December copper contract on the Nymex shed nine cents to US$3.29 a pound. Bullion also faded with December gold down $21.30 to US$1,655.30 an ounce.

Meanwhile, investors coped with lower expectations for a solution to the eurozone crisis.

Hopes had been lifted last week that the 17 countries that use the euro, led by Germany and France, were preparing a three-pronged solution to the debt crisis. That would include measures to boost the power of the bailout fund, a recapitalization of a large part of the banking sector and a plan to get the banks to take a bigger hit on their Greek debt holdings.

However, hopes for such a plan were lowered on Monday when German officials, including the finance minister, cautioned investors against believing that Sunday’s summit of eurozone leaders in Brussels would mark a definitive turning point in the crisis.

Investor disappointment pushed the TSX down 159 points on Monday while the Dow industrials tumbled 247 points.

Sentiment further sourced Tuesday following a warning from Moody’s Investor Services that France may be put on notice for a possible credit rating downgrade after a three-month assessment.

The warning came after France’s finance minister said that economic growth next year may be lower than estimated.

Francois Baroin said that the growth estimate of 1.5% for Europe’s second-biggest economy next year was “probably too high.”

He blamed the risk of a global slowdown, which he said could be “very vast” and “severe.”

In mainland China, the Shanghai Composite Index dropped 2.3% while the smaller Shenzhen Composite Index lost 2.9%.

Elsewhere in Asia, Japan’s Nikkei 225 lost 1.6%, Hong Kong’s Hang Seng plunged 4.2%, and South Korea’s Kospi fell 1.4%.

European markets were sharply lower as London’s FTSE 100 index dropped 1.52%, Frankfurt’s DAX was down 0.91% and the Paris CAC 40 fell 2.07%.

American markets were also expected to be under pressure from the financial sector following disappointing earnings reports.

Bank of America earned US$6.2 billion in the third quarter, largely from accounting gains and the sale of a stake in a Chinese bank. The bank earned 56 cents per share, much better than the expected 28 cents a share but its stock was down one per cent in pre-market trading in New York.

And Goldman Sachs delivered a much bigger than expected loss. Goldman reported a loss of US$393 million, or 84 cents per share, much higher than the 15 cent loss that analysts had forecast. Revenue came in at $3.59 billion, much less than the $4.59 billion expected and its stock was down about one per cent in pre-market trading.

In other corporate news, Valeant Pharmaceuticals International Inc. (TSX:VRX) said it has acquired nearly 81 million shares of Cold-FX maker Afexa Life Sciences, or nearly 74% of the Edmonton drug maker, under a friendly takeover offer. Valeant said it will extend its bid to Oct. 27 to acquire the rest of the shares.

Sprott Resource Corp. (TSX:SCP) said it has begun a strategic review of its 81% owned subsidiary Waseca Energy Inc., an oil company operating in Western Canada. The review could lead to a sale of Waseca, which produces heavy oil in the Lloydminster area of Saskatchewan.