European Markets, Fundamentals

European Markets Rally Higher as Global Risk Appetite Continues

Europe Session Key Developments

•    Commodities Rally on Asian News; Dollar Weakness
•    Low Inflation Keeps Rate Speculation Subdued

Following Friday’s volatile session, European stocks raced higher with renewed vigor following developments in Asia and dollar weakness as risk appetite surged. Commodities rallied in response with gold trading at a fresh high above $1130 per ounce while oil climbed more than three percent off a one month low. News in Asia set the tone of trading as the Asia-Pacific Economic Cooperation followed the G20 is stating its intent to keep stimulus is place until recovery is assured. Also adding to optimism was a GDP report in Japan that showed third-quarter growth at the fastest pace since Q1 2004. Indicators closer to home had minimal effect as England’s Rightmove house price index posted a decline in November, while Euro-Zone CPI indicated inflation remains of minimal threat to policymakers. Ultimately, the atmosphere for trading remains a bright one and markets are likely to continue to rise should dollar weakness continue and indicators at least post some degree of improvement. While expectations for the following year are rising significant, traders will have to gauge in the months ahead how well the market takes over when central bankers start to pare back on emergency actions.

FTSE 100                      5,382.67                   +86.29               +1.63%
British stocks extended their recent drive to a fresh high as the index now remains up more than 21% year-to-date. The move today is the largest since mid-October and marks a clear break higher from a recent resistance at approximately 5,300. Leading the move today was the Basic Materials sector, up nearly five percent on strength in commodities. As the FTSE has a large proportion of raw material producers, further dollar weakness appears set to help the index outperform relative to other European indices.

CAC 40                     3,863.16                  +57.15                 +1.50%
Stocks in France closed near the highs of the day as gains were noted across nearly all sectors. Leading the move was a 3.08% rise in Basic Materials with steelmaker ArcelorMittal up more than four percent as commodities moved higher. Ultimately 39 of 40 companies saw their shares rise, as risk appetite spread across all equities. While the index remains below its recent October top at 3892.36, momentum seems to indicate that could change in the coming days.

DAX                         5,804.82                  +117.99              +2.07%
German stocks moved sharply higher to lead European markets with a gain of more than two percent. Overall the index remains in line with those of France and the UK, up more than 20% year-to-date while having not reached a new high yet. Improving trade bodes well for Germany, and is evident in the Baltic Dry Index, a measure of shipping costs for commodities, having nearly doubled since a recent bottom in late-September. Major movers today included steelmaker ThyssenKrupp, up 4.45% as it sells its Safeway scaffolding unit. Other leaders included automakers Daimler and BMW, up 4.4% and 3.36% respectively.

IBEX 35                     11,986.90                   +119.90                +1.01%
Spanish stocks climbed the least of the five majors as the low weighted Basic Materials sector rose in-line with others in Europe up more than three percent. Ultimately, the index closed today at a new 2009 high, having briefly touched above the 12,000 level for the first time since August 2008. The IBEX35 remains the leader among the five majors, with a year-to-date gain of more than thirty percent.

FTSE MIB                        23,620.44                    +336.24                  +1.44%
Italian stocks rose more than one percent with gains across most firms as the index rose to the highest level since mid-October. Ultimately, recovery in the financial sector remains vital as stocks in the industry are the single largest component of the FTSE MIB. Overall, the index has narrowed its contraction to less than four percent from its October highs. The sharp rise today may indicate a further break higher to come, although it remains to be seen whether previous resistance at approximately 23,700 is broken quickly.

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