European Markets, Fundamentals

European Markets Rally as PMI Improves While Dollar Weakness Continues

Europe Session Key Developments

•    Dollar Weakness Sends Commodities High
•    Central Bank News Afflicts Sentiment

European markets rallied sharply by approximately two percent as risk appetite increased amid improving fundamentals and commentary by Chicago Fed Chief Evans that set off renewed buying. PMI data in the Euro-Zone showed expansion for the fourth consecutive month while the composite index posted higher than expected at 53.7 in November. Across the pond, Chicago Fed President Evans commented to the Financial Times news that rates in the US may not see any increase until late 2010. This comment echoes trader sentiment as the earliest expected increase may come late in the second quarter of the coming year. Dollar weakness has played a significant role in contributing to higher commodity prices, while dovish sentiment by central bankers in the US and UK may weigh positively on equities as officials plan to sustain liquidity until economic growth becomes self-sufficient. At the same time, government bond rates remain near recent lows, a sign investors still lack full confidence in the outlook. Ultimately, further weakness in the US dollar, a near certainty in the interim, will continue to bode well for stocks.

FTSE 100                      5,355.50                   +104.09               +1.98%
British stocks climbed nearly two percent as the index remains a higher performer on the year than both the French CAC40 and German DAX. Largely helping the index outperform in recent months has been the considerable weight of commodity related firms, along with recovery in the financial sector as the BoE remains more bearish than its ECB counterpart. Today proved no different as the two sectors outperformed with gains in Basic Materials at 3.22% while Financials climbed 2.81% and Oil & Gas saw a move of 1.75%. Most stocks advanced with 96 of 102 stocks trading higher.

CAC 40                     3,813.17                  +83.81                 +2.25%
French stocks rose for the first time in five days as the index rallied sharply by more than two percent. Affecting the move was PMI data that showed manufacturing expanded quicker than in the previous month. All sectors closed up except for Technology, while Financials rallied 3.13% along with a 2.97% increase in Oil & Gas. All but two stocks closed higher with lender Dexia up the most at 3.94% followed by a 3.81% pickup in automaker Renault. Other large firms leading the index including oil company Total and BNP Paribas, each up more than three percent.

DAX                         5,801.48                  +138.33              +2.44%
German equities closed similarly to French stocks, up the most of the five majors despite PMI growing faster in neighboring France. Gains were noted across all sectors with no firm trading lower. Leading sectors included Basic Materials and Industrials, up more than three percent each while chemical producer BASF led stocks with a move of 4.04%. Ultimately, the index may outperform its neighbor in the coming months as improving trade stands to have a larger benefit on German, where much of the GDP figure is reliant on a trading surplus.

IBEX 35                     11,940.50                   +221.20                +1.89%
Stocks in Spain closed up the least of the five majors as the index remains the strongest of the five majors in 2009, up nearly 30% year-to-date. Leading today was the financial sector, up 2.67%, and a 2.09% move in Basic Materials as commodities rallied. The biggest movers on the session proved to be the three largest firms in the nation as banks Santander and Bilbao rose 3.24% and 2.52%, respectively. Telefonica also noted a gain of more than one percent.

FTSE MIB                        22,956.44                    +444.76                  +1.98%
Italy’s benchmark index closed higher by nearly two percent following four sessions of gains that led to a sharp drop of 3.32% in the index last week. While the move may mark a bottom, further upside will need to be seen with a cross above 24,000 for confidence to really lift. No stock fell today, while Banco Popolare SC gained the most at 5.63%. Italy’s two largest banks, UniCredit and Intesa SanPaolo, boasted gains of 3.4% and 1.45% respectively.

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