European Markets, Fundamentals

European Markets Fall on Dubai Risk despite Improving Domestic Fundamentals

Europe Session Key Developments

•    Indicators Fail to Lift Sentiment
•    Financials Face Exposure to Dubai Risk
•    Commodities Rise as Dollar Weakens

European markets slumped more than one percent as traders sold most stocks in favor of profit taking as November came to a close. Overall the month proved favorable for most markets as the British FTSE climbed 4% while French and German markets marked gains as well. The Italian index ended the month lower as concern in the financial sector led the heavily-weighted index into the red. Session trading today included news of European bank exposure to Dubai World’s possible default on upcoming debt, while improving indicators and commodity prices failed to lift sentiment. Oil had traded slightly higher as equities ended the session, while event releases signaled a vibrant economic rebound. Global news included India’s GDP growing faster-than-expected in the third quarter, while domestic indicators showed British mortgage approvals continuing to climb. At the same time, cracks appear to be emerging as confidence fell in November, along with a drop in consumer credit as lending and credit remains restrictive. Also on the docket was Euro-Zone CPI, which came in positive for the first time since April, a positive development, but one which may force the ECB to make earlier decisions to pull back monetary easing efforts. Ultimately, investors remain rattled by developments in Dubai, and confidence remains weak. Spending by consumers may not increase significantly, if at all, this holiday season, and much of the gains in financial stocks appears to be priced in.

FTSE 100                      5,190.68                   -55.05               -1.05%
British stocks ended lower by more than one percent as losses reverberated across all sectors while nearly 85% of stocks fell. Leading the decline were losses in Financials and Oil & Gas, including a market leading drop of 5.89% in Lloyds and a 1.58% dip in British Petroleum. Other major movers included Royal Bank of Scotland and insurer L & G, both down 4.45% as financials fell on concern Dubai World may default on debt. Ultimately British stocks ended the month strong with a gain of nearly 4% as higher commodity prices helped to boost raw material producers, a large component of the benchmark index.

CAC 40                     3,680.15                  -41.30                 -1.11%
French equities fell more than one percent with losses across the board in all but three stocks. Major laggers included networking technology firm Alcatel-Lucent down 3.49% along with a 2.92% drop in tiremaker Michelin. Other large losers included oil company Total and drug maker Sanofi-Aventis down more than one percent each.

DAX                         5,625.95                  -59.66              -1.05%
German stocks fell in line with other European bourses as all but three stocks closed lower. Losses ranged as high as a 2.05% drop in Consumer Goods as automakers Daimler and BMW tumbled 2.6% while Volkswagen fell 4.83% with no firm specific news driving the trade. Ultimately equities ended November higher with a move of just under four percent while failing to surpass highs set in mid-October. A recovery in global trade, evident in the Baltic Dry Index, has cooled since mid-November but remains on track to end the year with sharp improvement.

IBEX 35                     11,644.70                   -132.10                -1.12%
Stocks in Spain fell more than one percent with 80% of stocks down while only Consumer Services posted a gain. Leading the losses was the financial sector, down 1.42% as concerns of possible default by Dubai World rattled markets. Spain’s three largest firms led markets lower with banks Santander and Bilbao down more than one percent each.

FTSE MIB                        21,928.16                    -277.12                  -1.25%
Italy’s benchmark index closed the lowest of the five majors while also closing November as the only index of the five majors that was down in the month. The FTSEMIB remains well above the low set on Friday, at under 21,400, but further concerns in the financial sector could set the stage for more downside in the heavily-financial weighted index.

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