European Markets, Fundamentals

European Stocks Rise Slightly as Commodities Climb to New Highs

Europe Session Key Developments

•    Crude Oil Rises above $71 Per Barrel
•    Technology and Basic Materials Led Gains

European Markets emerge from yesterday’s mixed session with slight upside across the five majors today as traders reacted positively to US TARP repayment approvals and some fundamental releases in Europe. Most indicators however came in poorer with French industrial production posting a surprise fall while the UK trade balance deficit increased. Italian trade in the first quarter fell at a larger pace than expected along with GDP while industrial production posted a gain of 1.1% in April. Production also grew in the United Kingdom with a small 0.3% gain versus expectations for a 0.1% decline. Following considerable downside in the past week, it is not unexpected to see markets recover. Specifically, miners and energy stocks led the advance along with technology as crude oil reached a new year-to-date high above $71 while copper also climbed. Major firms including BHP Billiton, Total SA and Rio Tinto posted significant gains. Technology traded higher as German engineering firm Siemens reported that it is on schedule with sales and earnings forecasts given earlier in the year. While the upside today is considerable, there is no guarantee that downside momentum will come to an end.

FTSE 100                      4,436.75                   +31.96               +0.87%
Trading in the UK market led to a gain of nearly one percent as a sharp rally of 4.05% in Basic Materials led six of the ten sectors higher. More than half of stocks traded higher into the close with miners taking a clear led with five firms seeing the most upside on the day. Vedanta and Eurasian Natural posted greater than eight percent gains while miners Xstrata, Rio Tinto, and Kazakhmys all posted moves in excess of six percent. Other companies showing considerable upside included financials such as Royal Bank of Scotland, up 4.99%, and a 3.52% move in HSBC. Data in the UK was mixed with industrial production rising slightly while the trade balance deficit expanded. On the downside with a sharp fall was travel company Thomas Cook, down 7.10% on news from the Financial Times that the firm is agreeable to a merger with Germany’s Rewe Group.

CAC 40                     3,315.27                   +18.54                 +0.56%
Trading in France led to the smallest gain of the five majors but still higher than half of one percent as seven of the ten sectors advanced along with a ratio of 3:1 for winners to losers. Technology led at 3.03% followed by Basic Materials at 2.51%. Firms leading the charge included STMicro, up 6.05% as German engineering firm Siemens reiterating its earnings forecast, along with a 3.92% move in steel tubing maker Vallourec. Following close behind was ArcelorMittal, the world’s largest steel producer, with a 3.43% advance to led the index point move.

DAX                         5,051.18                    +53.32             +1.07%
Trading in the German market led to a more than one percent gain as five sectors saw moves in excess of one percent and only two sectors fell. Adidas proved the big winner with a 7.32% advance on an upgrade from HSBC to “overweight” from “underweight.” Also seeing considerable upside were four companies with gains of over three percent including steelmaker ThyssenKrupp. Data in Europe’s largest economy showed consumer prices remaining at no change on a year-over-year level from the previous year in EU harmonised results. Improvements in inflation will be an important sign for consumers to begin spending again as prices stop declining.

IBEX 35                     9,627.60                   +129.90                 +1.37%
The Spanish index gained the most of the five majors as advances were seen in all sectors with the exception of a 1.37% drop in Technology. Consumer Services rose 3.95% while four other sectors gained more than two percent each. Apparel maker Inditex led the move as its shares rose 5.12% on news that revenue improved in the early weeks of the second quarter. Rising store sales due to improvements in consumer confidence and expectations for “fairly stable” gross margins sent investors flocking to shares of the beaten down company. Also trading higher were insurer Mapfre and steelmaker ArcelorMittal which both gained more than three percent.

S&P/MIB                        20,299.00                    +228.40                  +1.14%
Trading in Italy led to a gain of over one percent as strength was seen in seven of nine sectors and technology posted a sharp 6.14% gain on STMicroelectronics, the only stock in the sector. STMicro rose as Siemens reiterated earnings and investors grew optimistic in the sector. As recovery continues, firms that delayed orders of new equipment are likely to begin purchasing and pent up demand will cause a significant improvement in earnings. Also seeing a considerable move and leading the index higher were holding company Prysmian, up 6.55%, and Bulgari. The jeweler advanced 6.36% following the sale of 130 million euros in bonds. Italian indicators today came in mixed with first quarter data posting poorly while industrial production rose more than one percent in April.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com