European Markets, Fundamentals

European Markets Rise as Indicators Point to Improving Outlook

Europe Session Key Developments

•    Indicators Boost Market Sentiment
•    Commodities Flat While Dollar Weakens

European markets ended the session by just under one percent after a volatile spike late in the trading session as US equities opened. Largely affecting trading today were indicator releases including data in Germany, Italy and the UK, as well as event releases for the US. European fundamentals appear favorable as British third quarter GDP was revised to a smaller contraction, while mixed reports from the mainland were evident in a fall in German confidence while Italy’s increased. Meanwhile, data in the US led to volatility in Europe as figures showed improvement in spending at the expense of durable goods, while home sales increased along with fewer jobless claims. Commodities had a light effect on the session, hovering near recent levels while Gold surged to a new high on continued weakness in the US dollar. Ultimately, markets remain in a fragile state below recent highs with further declines in the greenback likely to boost asset prices. Consequently, equity markets will continue to rally pending no change in tone from ECB and US central bankers. A crucial concern going into the final months remains whether traders see the market as overbought. Several of the major indices remain off their mid-October highs, but have rallied some 30% since July lows.

FTSE 100                      5,364.81                   +40.85               +0.77%
British stocks rose the most of the five majors with a gain shy of one percent as approximately two-thirds of stocks rose. Largely affecting the gain in the UK was a revision to GDP that came in better than the initial contraction estimate. Health Care rose the most at 1.8% while four other sectors also advanced more than one percent each. Leading movers today included BHP Billiton up 3.1% while Vodafone increased 1.72%. Ultimately, British stocks appear favorable to other European indices as central bank caution will limit investor angst over rate increases, while further dollar weakness will bode well for raw material producers.

CAC 40                     3,809.16                  +24.54                 +0.65%
French equities posted gains across nearly all sectors while approximately two-thirds of stock advanced. Leading the move were greater than two percent gains in Consumer Services and Telecom. Media firm Vivendi led with a gain of more than four percent as news of its talks with GE on NBC Universal continued. Overall, the French economy is growing faster than its counterparts according to recent PMI data, although stocks don’t seem to reflect this same success with the index posting the lowest gain in 2009 of the five majors.

DAX                         5,803.02                  +33.71              +0.58%
German equities posted gains in seven of nine sectors while financials actually fell slightly amid a report by the Bundesbank of an additional €90B in loan and securitization losses that have yet to be written down by the nation’s major banks. Volkswagen shares fell the most at nearly three percent despite comments by CEO Winterkorn that sales this year will have exceeded the previous year. 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                     11,965.80                   +60.60                +0.51%
Stocks in Spain climbed more than half-of-one percent as most sectors advanced while Banco Santander and Telefonica led movers with gains of nearly one percent each. Ultimately the day included minimal volatility with only one stock up more than two percent while no firm saw a loss of one percent or more. Overall, the index remains the best performer on the year-to-date with an increase of 30.12% as global recovery will bode well for emerging nations in the Americas, a significant source of revenue for many of the nation’s top firms.

FTSE MIB                        22,741.85                    +33.40                  +0.15%
Italy’s benchmark index closed higher with the smallest gain of the five majors as the heavily-weighted financial sector limited the advance. Overall, most stocks fell on the session including Italy’s largest bank, UniCredit, which fell 0.52%. Elsewhere, automaker Fiat led losers with a fall of 1.58%. The index has now traded in a tight 500 point range in the past four trading sessions and concern remains whether the FTSE MIB, still more than 7% off its mid-October highs, has further room to retrace.

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