European Markets, Fundamentals

European Markets Pare Gains Following Dismal US Data

Europe Session Key Developments

•    Indicators Largely Affect Market Move
•    Crude Rises Following Inventory Report

European stocks had traded stronger for much of the session prior to turning sour as US data came in on housing and inflation. The releases showed housing starts declined while consumer prices rose faster-than-expected, raising concern over the Fed’s next move. In Europe, indicators proved minor to trading as construction output for the Euro-Zone fell in September, while the Bank of England Minutes revealed discord between policy makers over quantitative easing measure while lowering the deposit rate was discussed. Also affecting trading today were commodities, which moved higher with crude at approximately $80 per barrel. Overall, most indices closed lower marginally while the Spanish IBEX35 climbed to a fresh high above 12,000. Ultimately, the atmosphere for stocks remains one of concern. Following the recent correction in equities, there has been a sharp rally with several indices tracking to new highs for the year. Dollar weakness and higher commodities have largely been a factor, while improving fundamentals in the third quarter have also played a considerable role. While expectations for the coming year continue to rise, it remains questionable whether the pace of growth will continue to improve or whether there will be short-term fallout in equity markets. A so-called “jobless” recovery appears to be in the process for many of the advanced economies and this could pose some stress on the financial sector, vital to lending and credit growth.

FTSE 100                      5,342.13                   -3.80               -0.07%
British stocks closed lower with a minor decline as nearly half of stocks fell on the session. The move marks the second day of declines, breaking a four-day winning streak that set a new high on Monday. Leading gains was a 2.22% rally in Basic Materials as commodity prices continued to rise, while all other sectors posted minimal swings, with the exception of a 2.47% fall in Telecom. Miners Fresnillo and Xstrata each climbed nearly five percent while Vodafone was the biggest drag on the index, down more than two percent.

CAC 40                     3,828.16                  -0.90                 -0.02%
French equities closed down with little change as approximately half of stocks fell along with five of ten sectors. Gaining the most were Financials, up 0.71%, while Consumer Goods declined nearly one percent. The index remains below its mid-October highs and has now trended lower for a second day. Since the start of the month, stocks had rallied more than seven percent, and a small correction or consolidation following such a large move is not unexpected.

DAX                         5,787.61                  +9.18              +0.16%
German stocks climbed more than a tenth of one percent to extend the monthly gain to 6.88%. The index has yet to hit a new high, similar to its French counterpart, but appears poised for further upside in the near-term as global trade, evident in the Baltic Dry Index, improves while demand from Asia appears strong. Individual sector moves included greater than one percent gains in Industrials and Utilities, while Basic Materials fell 1.44%. Engineering firm Siemens climbed the most at 2.39% while drug maker Bayer fell to a similar degree as a buyout rumor by IPIC was denied.

IBEX 35                     12,034.40                   +75.00                +0.63%
Spanish stocks diverged from the rest of Europe as more than three-fourths of stocks advanced along with all sectors, with the exception of Technology. Individual leaders included wind-turbine maker Gamesa and steelmaker ArcelorMittal as commodities climbed while overall market movers included Telefonica and Banco Santander. News in Spain today included finalized third-quarter GDP, which fell three-tenths of a percent. The economy remains a grim picture with unemployment in the third quarter at nearly 18%. Ultimately, many companies in the nation depend on a large portion of revenue from Latin America and South America and global growth will lead many emerging nations to outperform advanced economies.

FTSE MIB                        23,334.74                    -46.44                  -0.20%
Italian equities fell for a second session with the largest decline of the five majors. Ultimately the move remained minimal while the index may be seeing resistance at approximately 23,700. More than half of stocks gained on the day while UniCredit, Italy’s largest bank, fell the most at 2.59% following a revision to earnings forecast by Credit Suisse and comments by Moody’s that Austria and eastern Europe remain volatile. On the other end of the spectrum, Banca Popolare di Milano Scrl rose the most at 2.64% while construction firm Impregilo climbed 2.46% following the win of a highway contract.

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