European Markets, Fundamentals, Uncategorized

European Equities Mixed After Bank of England Rate Decision, Chinese Move to Curb Lending

Europe Session Key Developments

• Bank of England Holds Rates, Announces Corporate Bond Purchases
• British House Prices Rebound in November
• Euro-zone, German Retail Sales Disappoint

European markets were mixed during Thursday’s session, following worse-than-expected Retail Sales data from Germany and the broader Euro-zone region. German Retail Sales, adjusted for inflation, fell by 1.1 percent in November from October, surprising analysts who predicted a 0.3 percent gain month-over-month. From a year earlier, sales had fallen 2.8 percent. German Factory Orders gained 0.2 percent in November after falling 1.9 percent in October, the Economy Ministry said today, helping offset losses. The biggest news on the day came from the British Isles, however, after the Bank of England announced that it would continue its quantitative easing policies by holding the key benchmark interest rate at 0.50 percent and announcing that it would begin purchasing corporate bonds. News from China also jolted indices worldwide today, after selling three-month treasury bills at a higher interest rate for the first time in nineteen weeks, in a move to control lending and fight inflation.

Looking ahead to Friday, January 8, 2010, there is heavy volume of data for Europe. Swiss unemployment is due, with an expected increase to 4.4 percent in December. German and French Trade Balance data are released, both of which are expected to show decreases. Later in the day, Producer Price Index data for Great Britain are expected to show month-over-month and year-over-year increases for December. Finally, final gross domestic product numbers for the Euro-zone from the third quarter of 2009 are due, followed by the Euro-zone Unemployment rate, which was expected to have increased to 9.9 percent in November.

FTSE 100                      5526.72                   -3.32               -0.06%
Despite news that the Bank of England would begin buying corporate bonds in order to ease trading for banks and investors, the FTSE closed slightly lower, down to 5526.72. The Monetary Policy Committee of the Bank of England held the benchmark interest rate at 0.50 percent, and pledged to spend the rest of the 200 billion Pound Asset Purchase Programme in order to help the economy recover from the recession. The index is up a modest 1.27 percent in the first week of the year. Sustained low interest rates have helped housing prices rebound, which gained 1.0 percent in December, according to a report by Halifax. Five sectors posted gains while five sectors posted losses on the day, with Technology gaining the most, up 1.85 percent, and Telecommunications down the most, sliding 2.30 percent. Retailer Sainsbury gained 3.2 percent during trading hours, the biggest gain in more than two months. UBS raised Wolseley’s rating from “neutral” to “buy,” helping the stock rally for a fifth consecutive day, up 2.6 percent. JD Sports Fashion, another retailer, gained 12.0 percent in its biggest gain since April 2009.

CAC 40                     4024.80                   +7.13                 +0.18%
Trading on the French market on Thursday resulted in six of ten sectors gaining, netting a 0.18 percent climb to 4024.80. Telecommunications weighed on the index, dropping 1.25 percent, as France Telecom dropped following disappointing 2009 earnings data from Verizon Communications. Havas gained 6.1 percent after it was upgraded to “conviction buy” at Goldman Sachs Group. JCDecaux also had its rating raised by Goldman, pushing the equity security up 9.0 percent.

DAX                         6019.36                    -14.97             -0.25%
After surprising news that retail sales in Europe’s largest economy dropped for the first time in three months, the German index dropped one-quarter of a percent. Retail Sales data for November showed a decline of 1.1 percent, before broader Euro-zone Retail Sales data indicated a 4.0 percent decline from the year previous. German retailers Metro and Praktiker plunged 4.0 percent and 8.3 percent, respectively, following the news. Overall, seven of ten sectors fell on the day, with Telecommunications and Consumer Services leading the decline with 1.90 percent and 1.29 percent losses each. Auto-industry companies Volkswagen and Continental gained 1.2 percent and 13.0 percent, respectively, while Commerzbank, Germany’s second largest lender, posted a 4.1 percent gain, making it the best performer on the DAX for the day.

IBEX 35                     12166.30                   -56.20                 -0.46%
The Spanish market fell for the first time in the new year, just under one-half of one percent, down to 12166.30. Six of ten sectors fell on the day, though Basic Materials and Consumer Goods each rose more than 1.2 percent each. Top gainers on the day included telecommunications and media companies Gestevision Telecinco and Promotora de Informaciones, climbing 1.3 percent and 5.4 percent, respectively, after each company had their stock recommendations upgraded by advisors. Actividades de CyS stumbled 1 percent after it was downgraded by AlphaValue, and Ferrovial fell for the first time in a week, down 0.5 percent.

S&P/MIB                        23709.01                     +86.72                 +0.37%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com