European Markets, Fundamentals

European Stocks Rally to New Highs on German Election and M&A Sentiment Boost

Europe Session Key Developments

•    Commodities Strengthen Despite Greenback Appreciation
•    Merkel’s Election Victory Boosts German Stocks
•    M & A Activity Lifts Sentiment

European Markets posted a sharp rally across the board, leading to new highs on several of the main indices. Investor sentiment on the day was lifted by further stability in commodity prices, with metals and energy trading slightly higher amid appreciation in the greenback. Also affecting the mood was a victory for Merkel’s party in the German election, a contributing factor that could bode well for a center-right coalition to be formed. Other news included mergers & acquisitions activity in the pharmaceutical and technology space while indicator releases were light. While few strings of data were on the docket, those available came in strong. Hometrack’s monthly housing survey on average prices in the UK increased for a second month with the fastest rate of growth since June 2007. The rise in prices adds to the hope that stability in the sector could lead to a recovery in consumer spending and increased risk-taking on the part of banks holding billions in toxic assets. Also released was the Italian consumer confidence index, which accelerated its gain in September to the highest in more than seven years. Despite the uplift in equities today, traders should remain concerned over profits in the third quarter. Analysts have hiked up estimates in recent months as economic data posted strongly, while businesses continued to cut costs and labor.

FTSE 100                      5,165.70                   +83.50               +1.64%
The British market closed higher with gains across the board as all sectors advanced. Health Care rose the most, followed by Financials and Basic Materials, up more than two percent each. Building materials firm Wolseley posted the largest gain at 11.15% on news the firm’s debt plunged 61% since July 2008. The Health Care sector rallied as GlaxoSmithKline climbed 1.96% on news the company plans to expand energy drink sales following success in China. AstroZeneca also moved higher by more than two percent on speculation following Solvay’s sale of a drug unit to Abbot Labs. While the FTSE remains below its highest close of the year, momentum may carry through in the following sessions.

CAC 40                     3,825.00                   +85.86                 +2.30%
French equities rose more than two percent as stocks rallied across the board while Basic Materials and Technology climbed more than three percent each. Building materials firm Saint-Gobain posted the biggest gain as one of one firms up more than four percent. Other major leaders included bank Societe Generale and steelmaker ArcelorMittal. Overall the French index climbed for the first time in four days propelled the CAC40 to within eleven points of a record for the year.

DAX                         5,736.31                    +154.90             +2.78%
German stocks rallied the most of the five majors as three sectors rose more than three percent each while Utilities led with a gain of 4.4%. The sector posted a large advance as Merkel’s victory in the German election raised the likelihood of a more open relationship to nuclear energy usage. E.On rose in response by 4.5% while rival RWE gained 4.20%. Other firms advancing included drug maker Bayer, as well as automaker Volkswagon and Commerzbank, up more than four percent each. Ultimately the index closed at a new high for the year, a positive sign for trading ahead.

IBEX 35                     11,891.20                   +247.40                +2.12%
The Spanish index rose by more than two percent as all but two stocks advanced while Basic Materials climbed 3.41%. The biggest mover for the IBEX as a whole proved to be the heavily-weighted Financials, up 2.18% on the day. Individual stocks seeing considerable action included builder Obrascon Huarte, rising more than 6% as Bank of America added a “buy” rating on the firm. Major banks, meanwhile, including Santander and Banco Bilbao also saw decent gains of 1.91% and 2.7%, respectively.

S&P/MIB                        23,478.43                    +375.69                  +1.63%
Italian stocks rose across the board with gains in nearly all stocks listed, despite the index rising the least of the five majors. Leading the move was phone book publishes Seat Pagine, up 6.02%, followed by a 4.4% rise in shares of Banco Popolare SC as Keefe, Bruyette & Woods upgraded its rating on the firm to “outperform.” Other market movers included tiremaker Pirelli, up 3.76% following recent weakness, and a 3.72% increase in STMicro as technology stocks advanced on M & A news from Xerox in the US.

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