European Markets, Fundamentals

European Stocks Close Higher Despite Paring Gains in Final Hours

Europe Session Key Developments

•    Oil Pares Gain as Dollar Recovers
•    Earnings/Fundamentals Lift Sentiment

European markets ended the session paring much of the gains seen in the morning. Initially, dollar weakness and strong indicators from Asia had sent commodities and risk appetite racing higher. Data from China showed trade improving, while growth in retail sales and industrial production continued despite slowing loans. In Japan, meanwhile, machine orders posted a sharp increase as recovery in the nation may be signaling a return to capital spending. Domestically, earnings in Europe from banks including UniCredit and Credit Agricole, as well as rising forecasts from others, such as German utility E.ON, helped to lift sentiment. As the day wore on, however, the US dollar re-gained lost ground as US Treasury secretary Tim Geithner reiterated the notion that a strong dollar is an important policy matter. Consequently, commodities came under pressure with raw material producers feeling the pinch. Ultimately, markets have seen considerable gains since the start of November and sidelined liquidity may have indeed filled the void created by the late October sell-off. At the same time, caution should be high as equities remain off their highs, while further cracks in confidence and other measures could bode poorly for the months ahead. As central banks begin to pull back on emergency actions, including the ECB’s planned final loan auction in December, it will be important to see whether the market fills the gap on its own and whether lending growth will resume.

FTSE 100                      5,266.75                   +36.20               +0.69%
British stocks ended the session higher by the least of the five majors despite reaching an intra-day record high for the year. Ultimately, the index is up nearly 19% year-to-date and has quickly recouped its recent correction while other indices on the mainland are still off several percentage points. Leading the move today was a 2.43% gain in Basic Materials as well as a 1.33% rise in Financials. Weakness in the British Pound helped lift equities as UK job losses continued, though at an narrower pace, while a quarterly inflation report sent rate hike optimists fleeting. Sustained monetary easing will bode well for equities and may help the FTSE outperform its peers.

CAC 40                     3,814.39                  +28.80                 +0.76%
Stocks in France closed higher by more than three-fourths of a percent as gains of more than 1% were noted in three sectors. Basic Materials was up nearly 2%, while Financials rose on strength in Insurers and Credit Agricole higher by 5.59% after beating the street’s estimate for its third quarter result. Also leading the session was a 3.16% rally in steelmaker ArcelorMittal, following strong data in China. Overall the index remains well of its recent highs but carries a year-to-date gain in a similar range as the British FTSE.

DAX                         5,668.35                  +55.15              +0.98%
German equities rose nearly one percent as a better forecast from utility E.On lifted sentiment, while strong data in China raised the prospect of improving trade. As much of the German economy is dependent on trade, the news provided a significant boost to confidence with four stocks rising for each that fell while only the Health Care sector declined, albeit at a minor 0.01%. Major movers on the index included chemical producer BASF up 1.65% along with a 1.19% gain in E.On. Infineon climbed the most at more than six percent as the firm announced it will supply chips for use in Chinese Passports.

IBEX 35                     11,801.40                   -12.60                -0.11%
Spanish equities fell slightly following a volatile session with 77 index points lost on a 2.86% drop in Telefonica. Elsewhere, Financials made up for some pressure as the sector advanced nearly one percent as Banco Bilbao added 1.95% along with a 1.01% rise in Santander. At the same time, Banco Sabadell, a smaller bank valued below ten billion, fell more than five percent as Italy’s UniCredit sold its stake in the lender. Overall the index remains up the most of the five majors since the start of the year with a gain of more than 28%.

FTSE MIB                        23,266.60                    -252.94                  +1.10%
Italian stocks closed with the best gain of the five majors as strength in the financial sector led to a broad rally in the index as winners outpaced losers by a ratio of more than 5:1. UniCredit’s earnings release, which came in better-than-expected, led the stock to climb just 0.40% as loan-loss provision increased. Meanwhile, Intesa SanPaolo, Italy’s second largest bank, saw its shares rise 2.97%. Other noteable gains included a 3.1% rise in cement maker Buzzi Unicem as the firm reported a greater than 50% fall in nine-month net income. Financial-services firm Mediolanum climbed the most at 5.09% as profit more than doubled from the previous year while a dividend would be issued.

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