European Markets, Fundamentals

European Stocks Rally Higher on Earnings and Fundamental Data

Europe Session Key Developments

•    China Export Growth Fuels Demand Speculation
•    Earnings Boosts Tech, Financial Sectors

Following declines yesterday, European markets rallied to fresh high for the year as earnings reports led to broad buying across all sectors. Intel’s strong Q3 release buoyed technology stocks as the chipmaker’s sales came in ahead of estimates, while the firm’s guidance also came in higher than expected. JPMorgan Chase also reported during the middle of the trading session in Europe with a strong $3.59 billion in net income. The reports helped boost sentiment on third quarter results, while a recent release on Chinese trade added evidence for global expansion as exports posted the smallest annual contraction in nine months. Export data indicated US and European demand increased sharply, while improvement was noted across the board in Russia, Brazil, the U.K, and others. Ultimately, strong earnings in the third quarter may lead businesses to minimize further layoffs as sales are anticipated to rise along with increased consumer wealth as equities have gained and housing stabilized. Such improvements are likely to buoy spending as winter shopping draws near. The third quarter appears off to an impressive start, while results in the fourth quarter will prove far more significant as analysts look for an increase in top-line sales that currently seems nowhere to be found.

FTSE 100                      5,256.10.17                   +101.95               +1.98%
Stocks in the UK rose to a new high as gains were noted in nearly all sectors with Financials and commodity-affected stocks seeing the biggest advances. Rio Tinto helped lead miners higher as the firm announced record iron ore production in the third quarter, while also raising its own 2009 output forecast. Kazakhmys rose nearly ten percent while Vedanta and Xstrata advanced more than seven percent. Also recovering from yesterday’s concern over banks were firms including Barclays, up 7.68%, as JPMorgan Chase’ earnings report raised optimism. The financial sector is likely to continue to see growth ahead in activities including M&A and underwriting as the onset of growth fuels action as valuations remain well below historical levels.

CAC 40                     3,845.80                  +46.19                 +2.14%
French stocks climbed more than two percent as 36 of 40 stocks gained along with a rally of 3.41% in Financials as earnings from JPMorgan Chase in the US helped to lift sentiment. Oil & Gas also rallied nearly three percent as crude advanced closer to the top of its range at approximately $75 per barrel. Major firms moving included Total up 2.95% as well as a 3.31% move in BNP Paribas. Meanwhile, resurgence in China’s trade helped ArcelorMittal to rally more than five percent as the steelmaker announced it will partially restart a furnace that had been shutdown to save costs earlier in the year.

DAX                         5,854.14                    +139.83             +2.45%
Germany’s benchmark index closed higher by more than two percent as the Basic Materials sectors, along with Industrials, rallied more than four percent. Significant improvement in China’s export figures affirm investor sentiment that export based economies, such as Germany, will recover quickly as growth climbs in the final quarter of the year. Chemical maker BASF rose the most at more than seven percent as the firm reported profit falling to €1.25B according to preliminary results. Other winners included Siemens, up more than five percent, as technology related stocks rallied on Intel’s strong projections for Q4.

IBEX 35                     11,870.90                   +262.60               +2.26%
Spanish stocks climbed more than two percent as strength was noted across nearly all sectors while Basic Materials and Financials climbed more than three percent each. The nation’s three largest firms all advanced, with Telefonica and BBVA up more than two percent while the nation’s largest bank, Santander, rallied 4.26%. Optimism affected the trading of such firms as JPMorgan’s earnings report raised sentiment for other financial groups. Firm-specific news, meanwhile, also lifted the shares as Bank of America upgraded its price target on Santander.

FTSE MIB                        24,348.23                    +419.46                  +1.75%
Italy’s main index climbed the least of the five majors while extending gains to a new high for the year as the heavily weighted financial sector saw considerable gains across the board. Firms including Unicredit, Unipol and Intesa Sanpaolo advanced more than two percent each. Overall, confidence is sweeping across equity markets and many firms are seeing upgrades and estimate increases ahead of third quarter results and the expected growth to come in 2010. Despite this, any cracks in spending that emerge could bode poorly for markets and lead to a sharp pullback.

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