European Markets

European Stocks Rally Higher on Optimism Surrounding US Toxic Mortgage Plan

European markets rallied higher following news of the US’s plan to deal with toxic mortgage assets clogged on bank balance sheets. Following the news of the plan, financial shares rallied and along with the increase in risk appetite, oil and other commodities rose as well.

Europe Session Key Developments

• Financials Rally on Public-Private Investment Program
• Commodities and Basic Materials Rise

European Stocks Rally High on Optimism Surrounding US Toxic Mortgage Plan

European markets rallied higher following news of the US’s plan to deal with toxic mortgage assets clogged on bank balance sheets. The plan is intended to use public and private funds to purchase up to one trillion dollars of bank assets. The US government would provide $75-$100 billion and add certain guarantees and provisions via the Federal Reserve and Federal Deposit Insurance Corporation while the rest of the funds would be provided by private fund managers interested in the risk. Following the news of the plan, financial shares rallied and along with the increase in risk appetite, oil and other commodities rose as well. In other positive news, Euro-Zone construction output rose in January following declines in nine of the ten previous months. Also of note were US existing home sales which surprised to the upside. While the figure concerns primarily US markets, a quick recovery to the largest economy in the world is likely to boost confidence and reduce contraction in other nations. On the downside, Euro-Zone trade balance deficit continued to widen to -10.5B in January as global trade continues to weaken as nations plunge into recession. Despite ever-present caution, risk appetite is rising in equity markets. For now, it appears as though the previous bounce that started to lose steam late last week may be seeing renewed vigor.

FTSE 100                      3,952.81                   +109.96               +2.86%
The British index rose nearly three percent as financials lead with a sharp 8.58% move to the upside. Aside from Basic Materials, which also rose a hefty 6.63%, all other sectors rose by less than 3% and Utilities actually fell 0.86% on the day. The large moves higher can be attributed primarily to the US’s toxic asset plan. Barclays led the financial sector higher, rising 15.71% on the optimistic fervor and also on positive rumor circulating that it will share its iShares unit for a reasonable price. Other major risers included HSBC, up 12.60%, and miner Rio Tinto, up 13.02% at the close. The UK economy continues to suffer deep manufacturing cutbacks and housing market distress. Earlier today Bank of England MPC member David Blanchflower, an early proponent for rate cuts, made calls for the government to introduce a large fiscal stimulus plan. Concern remains high but for now it appears equity markets are optimistic of the outcome, regardless of present conditions.

CAC 40                     2,869.57                   +78.43                 +2.81%
French equities rose in line with the FTSE’s gains and similarly rose on strength in financials; the sector rose 7.08% on the day. Technology was the only losing sector on the day, falling a mere 0.05%. BNP Paribas and Societe Generale led advancers, rising 9.0% and 8.74%, respectively. Optimism is certainly back in equity markets for the moment following a pause late last week after an impressive two weak bear market rally. The future remains uncertain but investors seem convinced governments will take action necessary to tackle any problem that faces global economies.

DAX                         4,176.37                    +107.63             +2.65%
Trading in the German market also led to a noticeable gain, though smallest of the five major indices tracked. Financials and consumer services sectors led with respective gains of 4.66% and 5.35%. Commerzbank rose nearly 10%, while Deutschebank rose an equally high 8.48% on the session. The only losing stock on the benchmark DAX turned out to be software maker SAP, falling a small 0.77% at the close. Germany’s economy is highly dependent on exports and the recent bout of weakness in global trade has certainly kept investors uneasy about the strength of the economy. The German Institute for Economic Research currently predicts the nation to contract 0.2% in 2010 while other nations in the European Union are slated to see small growth.

IBEX 35                     7952.30                   +242.30                 +3.14%
Spanish equities moved higher by more than three percent, led by greater than five percent moves in the basic materials and financial sectors. Seven of the nine sectors traded higher, with losses of less than four-tenths of a percent in consumer services and healthcare. Banco Bilbao and Banco Santandar led the index point advance as banking stocks across Europe and Asia rose on optimism following the US toxic mortgage plan. Largest percent movers for the day included Banco Popular, Engineering firm Abengoa, and Gestevision Telecinco all rising over seven percent on the day.

S&P/MIB                        15,811.00                    +863.00                  +5.77%
The Italian index rose the most of the five majors, rising over 5% due to optimism and strength in the financial sector which makes up nearly 40% of the weight of the index. The sector rose 9.61% trailed by a nearly 4% gain in basic materials. Unicredit and tiremaker Pirelli led advancers, rising 15.09% and 13.19% respectively. All sectors rose more than one percent and while a few companies saw share prices decline, the moves were minimal losses at worst. Luxottica was the lagger of the day, falling 1.05%. The Italian index not too long ago traded under 14,000 but has since surged significantly higher.