European Markets, Fundamentals

European Markets End Week Higher as Strong Fundamentals Lift Stocks

Europe Session Key Developments

•    Commodities Lower as Dollar Strengthens
•    US Jobs Data Raises Growth Optimism
•    Bundesbank Revises Up Outlook

European markets ended the week higher with the FTSE up more than one percent from the previous week along with a 2.32% rise in the German DAX while the French CAC closed higher by 3.36%. Initially, stocks had traded lower for much of the session before receiving a sharp rise following strong data from the US. Monthly readings of non-farm payrolls came in at -11,000 for the month while the previous October figure saw a better revision. The flash point came as a complete shock to economists surveyed by Bloomberg and sent a wave of risk appetite sweeping across global equities. Consequently, the greenback strengthened along with rate hike expectations, leading to lower commodities and a dramatic fall in gold of more than fifty dollar per ounce. Aside from US data supporting optimism, event releases domestically supported the move. News included British Chancellor of the Exchequer Darling revising his estimate for the total cost of the UK bank bailout. Also stirring risk appetite was a upward revision by the German Bundesbank forecasting growth of 1.6% in 2010 and 1.2% in 2011 versus earlier calls for stagnation next year. Adding to this, the credit market received a boost as Aviva was able to sell the first residential mortgage-backed bond since 2007. Ultimately, equities appear favorable as economic improvements continue to place firms in position for success in the early part of 2010. At the same time a highly eased monetary policy, despite seeing a recent shift towards tightening by Trichet yesterday, shows no major signs that a rate increase will be on the horizon in the next few months.

FTSE 100                      5,322.36                   +9.36               +0.18%
British stocks ended higher by the least of the five majors to lead the British index to a small move higher on the week. Ultimately, nearly half of firms posted lower at the end of the day, while weakness in financials continued with a drop of 0.52% while Basic Materials dropped 2.08% as dollar strength lead to lower commodities. Big losers included Randgold, down 4.27%, while Xstrata fell more than three percent. Overall, the high amount of raw material producers on the FTSE puts the index at risk should further dollar strength continue.

CAC 40                     3,846.62                  +47.51                 +1.25%
French stocks rose more than one percent with gains across all sectors and an impressive 1.94% move in Utilities. The index closed the week with a high 3.36% move as the French economy is seeing larger expansion in manufacturing than bigger neighbor Germany. Today’s major movers included a 1.21% rise in oil company Total while utility GDF Suez climbed three percent on news its shipment of liquefied-natural-gas will arrive in the Northeast US next week.

DAX                         5,817.65                  +47.30              +0.82%
German equities rose less than one percent with gains in all but the Industrials sector. More than 86% of stocks climbed while Deutsche Telekom climbed the most at just over two percent. Other market leaders included utility E.On and chemical producer BASF. Today’s close put the index at the highest closing since October with an upward revision to its outlook by the Bundesbank helping to keep sentiment strong on the German economy.

IBEX 35                     12,032.20                   +126.90                +1.07%
The Spanish index climbed today by more than one percent as the Financials sector moved higher by 1.69% to gain the majority of index points. Iberia airlines led the exchange with a gain of 3.28%. Other leaders included power company Endesa, up 2.41% along with a 2.36% rise in Banco Popular.

FTSE MIB                        22,926.03                    +310.09                  +1.37%
Italy’s benchmark index advanced more than one percent to close at the highest level in more than two weeks. Similar to other European markets, the FTSEMIB initially traded lower by approximately 200 points until US releases sent the index sharply higher with a move up of more than 400 points in ten minutes. Clear risk appetite resulted from the jobs report and may continue into the following week.

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