Fundamentals

European Equities Rebound From Worst Week Since March

Europe Session Key Developments

•    Spain, Greece Leaders Say Debt Concerns Are Overdone
•    Commodities Higher Across The Board
•    Euro Gains Against U.S. Dollar, Cable Lower

European stocks rallied today, off their worst week of the year, on an apparent return of risk appetite.  Investors drove commodities and stocks higher during the European session, and sold off U.S. Dollars in favor of the Euro.  Investors may be viewing the Euro as oversold after the past week, as the 14-day Relative Strength Index fell below 30 over the past few sessions.  On the commodities front, crude oil gained nearly 1 percent to $72, while gold and silver added nearly 2 percent each.  Over the past few days, European leaders have attempted to ease the minds of investors by showing support for the efforts of Greece, Spain, and Portugal as they fight their large budget deficits.  French Finance Minister Christine Lagarde told reporters over the weekend that European member of the G-7 will make sure the sovereign debts are managed.  ECB President Jean-Claude Trichet stated his belief that Greek debt will be reduced to a manageable 3 percent of GDP by 2012, while Greek Prime Minister George Papandreou reiterated his stance that Greece can handle its own deficit and that foreign aid would only serve as a poor signal to the market.  Papandreou is currently waging a battle against organized labor unions in his attempt to freeze wages and implement spending cuts.  His efforts have helped to a point, as credit-default swaps on Greek sovereign debt fell from last week’s record 428 basis points.  However, swaps on the country rose today by 12.5 basis points to 420 as over 600,000 public workers plan to strike for 24 hours on February 10.  In addition, despite chatter from the Spanish Finance Minister to quell investor fears, credit-default swaps on the sovereign debt of Spain and Portugal again rose to record highs today.  Swaps on Spain gained 4.5 basis points to 171, and swaps on Portugal increased 15 basis points to 242.

FTSE 100                      5092.33                    +31.41                     +0.62%
British stocks rose today from three-month lows, led by near 2 percent gains in basic materials and consumer goods.  Basic materials shares traded higher on rising metals costs and better-than-expected earnings from Randgold Resources.  The mining company added over 6 percent today after announcing that its four-quarter profit was significantly higher than estimates.  Copper producer Xstrata also posted better-than-expected earnings and gained over 3.6 percent on the session.  Xstrata also announced that it would resume paying a dividend to shareholders for the first time since 2008.  Consumer goods were led higher today by the world’s second-largest brewer, SABMiller, and chocolate-maker Nestle.  SABMiller gained 3 percent today, while Nestle added more than 2 percent.

CAC 40                           3607.27                   +43.51                    +1.22%
Trading in Paris led to the biggest gain among all the major European indices today after the Bank of France business sentiment reading rose to 104 in January from 102 the month prior.  Each CAC sector gained today with the exception of technology shares, and twenty-seven of the index’s forty stocks closed higher.  The top performer was Dexia, which gained over 4.5 percent following four consecutive days of losses.  The bank’s shares were bid higher after an announcement that Dexia will not need to sell any specific units to gain approval for a taxpayer bailout.

DAX                                 5484.85                     +50.51                  +0.93%
The DAX gained nearly a full percent during trading today as twenty-three of the thirty index stocks rose on the session.  Daimler was the best performer on the index, gaining over 3 percent after Wolfgang Bernhard was appointed to the head production position at Mercedes-Benz.  Deutsche Telekom also helped to lift the index, adding 1.8 percent after its shares were upgraded by WestLB.  The telecom firm is considering new possibilities for its T-Mobile unit, including an initial public offering in the U.S.  Other positive gains came from Germany’s largest two utilities, E. ON and RWE, which rose in tandem for the first time in four days.  SAP was the worst performer on the index, dropping over 2 percent after CEO Leo Apotheker resigned.

IBEX 35                           10206.30                   +103.00                 +1.02%
Spanish stocks rebounded after a terrible week, gaining over 1 percent as telecom and bank shares rallied.  Banco Santander gained nearly 2 percent, while BBVA added 0.5 percent after Spain’s Deputy Finance Minister Jose Manuel Campa talked down the country’s budget deficit.  Campa said that the government will take the necessary steps to cut the budget deficit with a targeted deficit of 3 percent of GDP in 2013.  The Finance Minister also stated his projection for 3.1 percent growth in 2013.  Telefonica gained over 2 percent today on news that the telecom operator is considering levying a fee on internet search engines such as Google and Yahoo for use of the network.

FTSE MIB                        20938.24                   +122.36                 +0.59%
Trading in Milan today led to the first gain for the FTSE MIB in four days, albeit the smallest among major European indices.  Gewiss gained over 3 percent on news that the electrical product manufacturer expects sales to improve next year to levels not seen since 2008.  Drugmaker Recordati gained over 1 percent, after two losing sessions, on news that the firm is looking at new acquisitions in eastern Europe and will report that 2009 earnings exceeded those of the prior year.  Defense contractor Finmeccanica fell over 4 percent after Goldman Sachs cut its price estimate on the firm and maintained its “sell” recommendation.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com