European Markets, Fundamentals

European Markets Pare Losses into Close

Europe Session Key Developments

•    Financials Fall on Rate Concerns
•    Commodities Lower as Greenback Climbs
•    Fundamentals Mixed While Confidence Improves

European markets started the session sharply lower with the FTSE down more than one percent in the first hour before paring the loss as the day proceeded. Downside through much of Europe was chiefly caused by commodity prices down against a stronger greenback, while financials were pressured as news emerged that Greece may see its credit rating lowered, and investors continued to move forward their timetable on rate hikes. Also affecting the group was news on Friday from an unnamed source who told Reuters that Finance Minister Darling may consider a windfall tax on banks in the upcoming pre-budget report, due for release on Wednesday. Aside from news flows, data today proved mixed with investor confidence in the Euro-Zone Sentix up to an 18-month high, while German factory orders unexpectedly dropped for the first time in eight months. Overall, the landscape for equity markets appears to be seeing a bit of a shift following Friday’s sharp improvement to US Non-Farm Payrolls. Although job losses are likely to be seen in the months ahead, growth is clearly accelerating at a faster pace than central bankers hoped for. Consequently, traders now speculate that liquidity programs may see quicker end dates and rate hikes may be closer on the horizon. Should this reality set in, equities may not be able to maintain impressive gains going into the early part of 2010. At the same time, fundamental improvements are likely to offset concerns caused by higher rates. Ultimately, economic growth should bode well for equity markets and any impasse caused by rate concerns and dollar strength are likely to simply limit the gains or lead to temporary selling pressure.

FTSE 100                      5,310.66                   -11.70               +0.22%
British stocks ended the session down fractionally following early losses of more than one percent. Half of sectors tracked managed to post gains along with 49% of stocks while financials led lagged with a loss of 1.47%. Concerning the group has been recent talk that Finance Minister Darling may consider a windfall tax on banks in a pre budget report due Wednesday. Royal Bank of Scotland and Lloyds, Britain’s largest and third-largest bank, fell more than four percent. Barclays, the second-largest bank and a non-recipient of government support, also fell more than 2%. Overall, further appreciation in the US dollar may be a significant hindrance on the FTSE as the proportion of affected raw material producers would be a drag on the benchmark index.

CAC 40                     3,840.05                  -6.57                 -0.17%
French equities closed lower by the least of the five majors as four sectors advanced including a slight 0.11% rise in financials. Winners were nearly in line with losers while gains and losses proved limited as traders started the week on a cautious note. No single stock saw a move of two percent or more in either direction while Drugmaker Sanofi-Aventis dragged the index with nearly five points to the downside.

DAX                         5,784.75                  -32.90              -0.57%
German stocks fell more than half-of-one percent as nearly all sectors fell, with the exception of Consumer Goods, following a surprise decline in factory orders in October. Losers outpaced winners by a ratio of three-to-one with truckmaker Man and fertilizer producer K & S down more than 1.9%. Upside, however, proved just as limited with chemical maker BASF up the most at 1.53% following by automaker Daimler, gaining 1.32% on news the carmaker expects a significant increase in fourth quarter sales.

IBEX 35                     12,011.80                   -32.90                -0.17%
The Spanish index fell similarly as the French CAC did with the smallest loss of the majors as five of nine sectors climbed while Industrials fell the most, down 1.17%. All three of the nation’s largest firms, including banks Santander and BBVA, closed lower by less than one percent. Ultimately the index remains a favorable bet on emerging economics as many of Spain’s leading firms see significant revenue abroad in South America and other regions.

FTSE MIB                        22,788.52                    -137.51                  -0.60%
Italy’s benchmark index fell the most of the five majors as losers outpaced winners by a ratio of two-to-one. Prysmiam fell the most at 2.21%, while no single stock advanced more than one percent. Ultimately, the index appears to be near resistance at 23,000 although it has risen sharply from lows two weeks ago under 21,400. Pressure in financials could lead to underperformance in the index as the sector is heavily weighted.

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