European Markets, Fundamentals

European Stocks Close the Week with Four of Five Indices Lower on YTD Level

Europe Session Key Developments

• Crude, Energy Moves Lower
• Indicator Reports Come in Slightly Above Estimates

European Markets trended slightly lower at the close while the Spanish IBEX posted another gain on the session, improving its year-to-date advance to 5.34%. Other major nations, meanwhile, have tilted back into negative territory include the FTSE, down more than four percent, while Germany is nearly one percent lower. Indicator releases today showed CPI in Germany maintained at no change while economists polled by Bloomberg had expected deflation. Also, improvements in the Swiss KOF leading indicator and rising US confidence did not help significantly as other signs, such as weak US spending, kept concerns high. Despite improvements in indicators, weakness continues in equity markets as high valuations relative to present conditions do not appear to warrant further upside.

FTSE 100                      4,241.01                   -11.56               -0.27%
Downside in the British market was primarily led by the Technology sector, down 1.17%, although weakness was seen in seven of the ten sectors. Movement in either direction proved minimal with no other sector posting a gain or loss of one percent or more. News out of the UK appears grim, with May house prices in decline, according to the government’s Land Registry, and the BOE expressing concern on vulnerability in the Financial sector.

CAC 40                     3,129.73                   -33.37                 -1.05%
Trading in the French market led to the lowest close of the five majors as the Health Care sector suffered a sharp drop of 6.96%. The move was mainly attributed to drug maker Sanofi-Aventis, which saw its shares drop 8.10% as Morgan Stanley and JPM cut ratings on the firm as concern rises on the company’s Lantus diabetes treatment. Also seeing a considerable fall was automaker Peugeot, which fell 5.44% as S&P put the firm’s credit rating on watch. French equities appear to continue moving lower as most companies do not expect profit to come in higher amid relatively high valuations for stocks.

DAX                         4,776.47                    -24.09             -0.50%
German equities fell half of one percent as all sectors showed weakness, with the exception of consumer goods. Utilities and Consumer Services fell the most at 1.85% along with downside in two-thirds of all stocks traded. Reinsurance firm Hannover Rueckversicherung dropped the most at 2.85% as the company commented that it will increase capital rapidly and may take part in M&A activity. Also suffering was retailer Metro, down 2.81%, as inflation hovered at no change for the second month.

IBEX 35                     9,686.90                   +19.70                 +0.20%
Spanish equities continue to rise as the only index in positive territory of the five majors. More than half of stocks rose on the day along with gains in five of the nine sectors with no losses of one percent or more. The Spanish market has shown clear divergence from other large nations and while it has failed thus far in achieving a new recent high, the index is less than one percent off while having rallied more than 40% off its early March low.

S&P/MIB                        18831.48                    -109.15                  -0.58%
The Italian index posted a lower close of more than half of one percent as six of the nine sectors declined. Lotto game manager Lottomatica fell the most at 4.79% as newspaper Agipro news reported that the Italian government will open bidding on its Gratta e Vinci lottery game. Overall, weakness lingers in the nation with investors selling oil companies while financials remain uneasy on economic deterioration. European markets on the whole appear to be correcting from a sharp rally that has the Italian index up nearly fifty percent from its March lows.

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