European Fundamentals

European Equities’ Precipitous Stumble Erases 2010 Gains

Europe Session Key Developments

•    German and Euro-zone PMI Manufacturing Beats Expectations, Hints of Inflationary Pressures
•    U.K. Money Supply Expands at Slower Rate than Anticipated
•    Commodities Fall on Weaker Demand, Stronger Dollar

European markets continued their fall on Thursday, dropping the second consecutive day to erase this year’s advance. Early in the session, bearish appetite flourished following the Chinese Gross Domestic Product data, which showed 10.7 percent growth for the emerging market. Speculation arose that the output expansion, which exceeded analysts’ expectations, will trigger further interest rate tightening down the road. U.K M4 Money Supply data showed an expansion but less-than-expected, which fueled a Dollar and Euro rally against the Pound. Additionally, U.S. jobless-benefits claims, coupled with speculation, which held to accurate, on President Obama’s plan to reign in risk-taking by banks fueled bearish sentiment worldwide. Following the speech by President Obama, which occurred after the European session closed and suggested that banks would be strictly prohibited from running proprietary trading operations or investing in hedge funds and private equity funds, European market equity futures tumbled anywhere between one and three percent each.

Looking ahead, light economic data is expected to end the week. Midway through the session, investors will be looking at French Business Confidence for January (expected 90.0), as well as British Retail Sales data for December (expected 1.1 percent increase from November, expected 3.0 percent increase from December 2008).

FTSE 100                      5335.10                   -85.70               -1.58%
British stocks fell for the second consecutive day, dropping just over one and one-half percent to erase this year’s gains. Basic Materials and Financials fell the most, down 4.31 percent and 2.72 percent each, after data later in the session showed that American jobless claims increased, a sign that the U.S. unemployment situation may be worsening. With investors speculating on weak consumer demand for the next few months, eight of ten sectors fell on the FTSE, with five sectors posting losses greater than one percent. Anglo American and Kazakhmys, both mining companies, led shares lower amid doubt that high demand for commodities will continue. RBS, Lloyds Banking Group, and Barclays lost more than five percent each ahead of President Obama’s speech on bank regulation. Among the gainers on the day were airline companies EasyJet and British Airways, which posted 5.2 percent and 3.6 percent gains, respectively, amid data beating internal forecasts.

CAC 40                     3862.16                   -66.79                 -1.70%
Trading in Paris netted losses across all sectors, dragging the CAC below 3900 points. The 1.70 percent contraction, led by Basic Materials and Financials, marked the second time this week the index has fallen. Seven of ten sectors lost more than one percent, while four sectors lost more than two percent. Overall, ninety-five percent of all equity securities traded on the French index posted losses on the day. Societe Generale followed banking shares around the world down, ending the day in the red by 4.7 percent. Eiffage, France’s third largest construction company dropped 4 percent after its shares were downgraded to “neutral” at Exane BNP Paribas. Other movers on Thursday included ModeLabs, a French mobile-phone maker, which dropped 11 percent, and Icade, after Societe Generale cut its recommendation on the stocks from “hold” to “sell.”

DAX                         5746.97                    -104.56             -1.79%
German stocks posted the second largest decline across Western Europe on Thursday, down over one hundred points to 5746.97. Basic Materials dropped nearly three percent, while Financials, Technology, Industrials, and Consumer Goods fell by 1.71 percent, 1.90 percent, 1.92 percent, and 1.99 percent, respectively. Financials pushed lower later in the session amid American banking regulation concerns, with Commerzbank leading the losses at 3.8 percent. Deutsche Bank skid 2.5 percent, while Siemens fell 1.7 percent. Overall, all nine sectors posted losses on the day, pushing the DAX down 3.53 percent overall in the new year.

IBEX 35                     11444.00                   -265.00                 -2.26%
Spanish stocks fell the most among the five major European equity markets, down over two and one-quarter percent, a 265 point loss. As the IBEX now sits at 11444.00, it has lost 4.15 percent on the year and sits at its lowest level since November 4. Nine of ten sectors dropped on Thursday, with Consumer Goods posting a meager gain of 0.14 percent. Technology, Basic Materials, and Financials all dropped more than three percent, while seven of ten sectors lost more than one percent overall. The losses mark the second consecutive day of bearish movement for the index. Banco Santander fell the most since May, contracting 4.2 percent. Cementos Portland Valderribas, a unit of the Spanish builder Fomento de Construcciones & Contratas, dropped 2.2 percent, for its fourth loss in five days. Other movers included Gamesa Corporacion Tecnologica, which slumped 3.3 percent after its shares were cut to “hold” from “buy’ at Societe Generale.

S&P/MIB                        22876.46                     -249.56                 -1.08%

Notable Europe Event Risk / Economic Releases

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

European Fundamentals

European Equities Surge Back to 15-Month High

Europe Session Key Developments

•    British Inflation Surges as Interest Rates Remain Low
•    European Economic Sentiment Deteriorating amid Greece Debt Situation
•    Commodities Rebound as Dollar and Pound Advance against Euro

European markets gained for the second time this week despite declining sentiment of a full-recovery spreading throughout Europe. The German ZEW Survey of Economic Sentiment showed a decrease in January, dropping to 47.2 from 50.0, while the Euro-zone ZEW Survey for the Current Situation in January dropped to -56.6. The biggest news on the day, however, was the release of the Consumer Price Index, which showed that prices rose 2.9 percent in December. As the Bank of England winds down its Asset Purchase Programme next month, investors are beginning to worry whether or not the economy can afford higher interest rates to fight inflation just yet as the economy remains weak and unemployment continues to rise.

Looking ahead to tomorrow, a slew of economic data released midway through Wednesday’s session should help boost trading volume and swing sentiment among investors. German Producer Prices from December are expected to show weak inflationary pressures (0.2 percent expected), while data relative to the year previous is likely to show considerable deflation (-5.1 percent expected). The two most important releases of the session will come from Great Britain, as Jobless Claims Change data from December (-4.6K expected) and Bank of England Policy Meeting Minutes from the January 7 meeting.

FTSE 100                      5513.14                   +18.75               +0.34%
Trading in London resulted in the second consecutive day of gains for the British Index, up 0.34 percent to 5513.14. Gains were led by the Health Care and Utilities sectors, up 1.70 percent and 1.27 percent, respectively. Overall, nine of ten sectors gained, with Financials posting the only contraction following Citigroup earnings in the middle of the trading session. Barclays, Britain’s second biggest bank, fell 1.8 percent after Credit Suisse Group speculated that it would need to raises over 17 billion Pounds in order to meet new capital requirements. Burberry surged to its highest level in more than two years after gaining 8.3 percent following reported sales. Chocolate company Cadbury added 3.6 percent after it agreed to a revised $19.7 billion offer from American company Kraft.

CAC 40                     4009.67                   +32.21                 +0.81%
French stocks continued their rebound after a poor second week in the new year, jumping 32 points on Tuesday, the second consecutive day of gains for the index. All French sectors pushed higher, collectively gaining 0.81 percent. Basic Materials, Health Care, Telecommunications, and Oil & Gas all gained more than one percent, while Financials lagged behind, only gaining 0.27 percent. Alstom, the world’s second-largest train maker dropped 2.5 percent after it announced that its third-quarter sales fell short of analyst’s expectations. Other losers on the day included Renault, which fell 2.2 percent after its recommendation was cut to “neutral” at Nomura.

DAX                         5976.48                    +57.93             +0.98%
Despite German investor confidence falling for the fourth consecutive month in January, trading on the German index resulted in the second consecutive day of gains, adding just under one percent to 5976.48. The German ZEW Survey, a measure of Economic Sentiment, dropped to 47.2 in January as worries begin to spread about Euro strength and the sustainability of the recent surge in asset prices. Eight of nine sectors gained on Tuesday, with Consumer Goods posting a one-half of one percent loss. Telecommuncations, Health Care, Utilities, Basic Materials, Financials, and Technology all posted gains greater than one percent. Dialog Semiconductor, a semiconductor maker, advanced 2.7 percent after it showed a 60 percent increase in its cash balance at year end from the year previous.

IBEX 35                     12022.60                   +151.90                 +1.28%
Spanish equity securities rose for the second straight day on Tuesday, posting the biggest gain among the five major European equity markets, up 1.28 percent. Nine of ten sectors posted gains on the day, with Technology leading the surge, up 2.33 percent. Overall, six sectors gained more than one percent. The Health Care sector posted the only loss, down 0.41 percent on Tuesday. Banco Santander added 1.9 percent after it announced plans to sell 1 billion Euros of covered bonds. Enagas jumped just under one percent after it was rated “overweight” at HSBC Holdings. Other movers on the day included Abengoa, which gained 2.4 percent, and Iberia Lineas Aereas de Espana, which gained for a fifth consecutive day to its highest price since December 4.

S&P/MIB                        23705.67                     +195.91                 +0.83%

Notable Europe Event Risk / Economic Releases

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

European Fundamentals

European Equities Rebound Ahead of Earnings Week

Europe Session Key Developments

•    British Housing Market Showing Signs of Recovery
•    Italian Trade Balance Suffers
•    Trading Volume Lighter Ahead of Inflation Data

European markets moved higher on Monday on speculation of better-than-expected earnings later this week from banks across the globe, a strong indicator of which direction global financials will move towards over the next few months. Data proved light on the day with markets closed in the United States for the Martin Luther King, Jr. Federal holiday, though bullish sentiment prevailed ahead of data releases later this week. Highlighting the rebound were data from Britain that showed a rebound in price in the housing sector, which has been mired in its worst slump of the past 25 years. Elsewhere, the Euro continued to falter against the Dollar regarding the debt situation in Greece, resulting in finance ministers from 16 European nations to meet to debate whether or not a currency intervention may be necessary. However, given the recovery state of the broader euro area economy, the European Central Bank’s Nowotny was quoted in an interview later in Monday’s session as saying that a currency intervention remains unlikely.

FTSE 100                      5494.39                   +39.02               +0.72%
British stocks advanced on Monday as nine of ten sectors rebounded following the first weekly decline in 2010. Basic Materials and Consumer Goods led the resurgence, up 1.75 percent and 1.27 percent each. Markets were boosted in the premarket as the Rightmove House Prices gauge showed 0.4 percent increase in house prices from December, while up 4.1 percent from January 2009. Despite this, Taylor Wimpey, Britain’s second-largest home builder, fell 2.1 percent on news that it sold fewer homes last year following the worst housing crisis in Britain in 25 years. Tullow Oil gained 2.2 percent after it announced it would move to purchases assets from Heritage Oil. Other winners on the day included Cadbury, which gained 1.8 percent after Kraft Foods said it was considering raising its bid for the chocolate company.

CAC 40                     3977.46                   +23.08                 +0.58%
Trading on the French exchange led to a gain just over 23 points, up 3977.46. Seven of ten sectors gained, with Oil & Gas climbing 1.60 percent. Alcatel-Lucent dropped 1.7 percent after two consecutive days of gains. Following two consecutive days of losses, L’Oreal, the world’s biggest cosmetics maker was raised to “buy” at Deutsche Bank. Other gainers on the day included PPR, up 1.9 percent to its highest level since October, while Zodiac Aerospace jumped 5.4 percent, its first gain in five days.

DAX                         5918.55                    +42.58             +0.72%
German stocks rose the most among the five major European equities, advancing 0.72 percent for its biggest gain in two weeks. As corporate earnings are expected to show improvement given the releases due over the next week, the DAX rebounded after lasts weeks losses, which were the worst losses since October. Ahead of the earnings, six of nine sectors gained, with Basic Materials and Consumer Goods rising the most, up 1.54 percent and 1.35 percent, respectively. Telecommunications was the only sector to drop more than one percent on the day. Continental, the second-largest European auto-parts manufacturer gained 3.2 percent on Monday after it was upgraded to “outperform” at Credit Suisse. BMW, the world’s largest maker of luxury automobiles, gained 1.5 percent, while Daimler rose 1.7 percent.

IBEX 35                     11870.70                   +25.70                 +0.22%
Following choppy trading last week, the Spanish index rose for only the second time in three days, up just under one-quarter of one percent on Monday. Six of ten sectors posted gains, with Technology suffering the most, down 1.03 percent. Consumer Services gained the most, up 0.71 percent during trading hours. Banco Espanol de Credito fell 1 percent as data showed that the number of bad loans in November rose from the same period in the previous year. Grupo Tavex surged 11.0 percent, pushing its total gains for the month to 41 percent. Spain’s biggest airline Iberia lineas Aereas de Espana gained for the fourth consecutive day as it was upgraded to “outperform” at Credit Suisse.

S&P/MIB                        23509.76                     +37.65                 +0.16%

Notable Europe Event Risk / Economic Releases

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

European Fundamentals

European Equities Falter as Recovery Optimism Wanes

Europe Session Key Developments

•    German Price Index Declines, EZ CPI Holds Steady Despite Low Rates
•    Euro area Trade Balance Decreases on Exports
•    Poor Earnings Data Drag Financials

European stock markets declined for the first weekly decline in over a month as a poor U.S. consumer sentiment report, coupled with worse-than-expected revenue data from JPMorgan drove markets negative on Friday. As JPMorgan, the United States first bank to report fourth quarter earnings, announced that it increased its credit-loss provisions, investors hesitated on the notion of a full recovery of the Financial sector, driving down banking institutions across Western Europe. All eighteen national benchmarks in Western Europe declined, except in Iceland, while the DAX dropped by nearly 2.0 percent. As trepidation builds regarding a full-fledged recovery just yet, market sentiment is expected to move on more earnings and a slew of important economic releases early in the week.

FTSE 100                      5455.37                   -42.83               -0.78%
Following a poor start to earnings season, the British market ended the week negative for the first time in the past four, finishing Friday at 5455.37. Eight of ten sectors dropped on the day, with Basic Materials, Telecommunications, Financials, and Healthcare all losing more than one percent each. Man Group, Britain’s largest publicly traded hedge fund, plummeted 6.9 percent after data showed a larger-than-expected drop in assets. Later in the session, news from the United States showed that JPMorgan, the second largest American bank, reported less-than-expected revenue, dragging Financial sectors across Europe down. Other losers on the day include QinetiQ Group, falling 12 percent, a record drop for the company. Overall, the index posted a 1.4 percent drop on the week, though the FTSE remains up 0.78 percent in 2010.

CAC 40                     3954.38                   -61.39                 -1.53%
Following its British counter-part, the French index sank today following dismal outlook from the Financials sector, which dropped over two and one-half percent on Friday. Overall, the CAC tumbled 1.53 percent, with nine of ten sectors appearing in the red on the day. Societe Generale, France’s second-largest bank, and Dexia, the largest lender to local governments in Belgium and France, each dropped 2.7 percent following the JPMorgan data. Amid the sell-off, notable gainers during the session were Carrefour, Cap Gemini, and Atos Origin, adding 3.6 percent, 3.6 percent, and 2.0 percent, respectively.

DAX                         5875.97                    -112.91             -1.89%
The German index fell the most among the five major European equity markets on Friday, declining nearly 2.0 percent to 5875.97. Despite data early in the session that German inflation remains well-within the European Central Bank’s medium-term range even as the ECB holds the key interest rate at 1.00 percent, the DAX tumbled following poor data suggesting consumer spending remains depressed abroad. Nine of ten sectors fell on the day, with Technology dropping 3.44 percent, and Financials and Basic Materials each losing more than 2.0 percent. Deutsche Bank and Commerzbank fell 3.7 percent and 2.5 percent, respectively, following Financials down across the globe. Other movers on the day included Drillisch, which added 2.3 percent, and HeidelbergCement, which fell 2.7 percent after its stock was downgraded to “hold” at ING Groep.

IBEX 35                     11845.00                   -154.80                 -1.29%
Spain’s IBEX index had its largest daily decline in nearly four weeks, dropping 1.3 percent for the day overall. The index is now down 0.80 percent in the new year following its biggest weekly decline in five weeks. Nine of ten sectors dropped on Friday, with five sectors dropping one percent or more, and Health Care posting the only gain on the day. Banco Popular Espanol slid 1.5 percent, while Banco de Sabadell fell 2.2 percent, its biggest decline in a month. Iberia Lineas Aereas de Espana added 1.5 percent, its largest gain since December 7, as crude declined during trading hours.

S&P/MIB                        23472.11                     -333.88                 -1.40%

Notable Europe Event Risk / Economic Releases

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

European Fundamentals

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

European Fundamentals

European Equities Hover Near 15-Month High amid Rising Service Industries

Europe Session Key Developments

• Euro-zone Service Industry Report Buoy CAC, DAX
• Crude Oil Touches 2008 Levels
• Markets Prepare for BoE Rate Decision

European stocks posted mild gains during trading hours on Wednesday after the Euro-zone Purchasing Managers Index Services and Composite both showed signs of expansion in December, the fastest such paces in more than two years. Despite data showing that Euro-zone Industrial New Orders dropped by 2.2 percent October, gathering sentiment of a strengthening euro area boosted Industrial sectors across all the major indices. The bull-run, lasting approximately 9-months and still moving upward, is expected to continue as crude and gold gain momentum. In Great Britain, Consumer Confidence for December dropped to 69 from 74 in November, which came as little surprise after yesterday’s disappointing PMI Construction reading of 47.1. Looking ahead to tomorrow, investors appear to be waiting on the Bank of England rate decision, which is expected to signal continue quantitative easing by holding the overnight interest rate constant at 0.50 percent.

FTSE 100                      5530.04                   +7.54               +0.14%
Trading in London resulted in few gains for the English market following a report showing that Consumer Confidence declined last month. Retailer Marks & Spencer fell 6.8 percent following the news. Four out of ten sectors helped keep the FTSE positive on the day, led by Technology and Basic Materials, which gained 2.77 percent and 2.06 percent, respectively. Metals provided enough fuel to boost Xstrata, the world’s fourth-largest copper producer, which gained 3.5 percent. Cookson Group gained 6.1 percent, up to its highest level since September, after it was upgraded to “neutral” from “reduce” at Arden Partners. Although crude reached its highest level since 2008, oil company Hunting fell 1.1 percent after a downgrade at Arden Partners.

CAC 40                     4017.67                   +4.76                 +0.12%
French equity securities posted slight overall gains amid the optimistic Euro-zone service report. Six of ten sectors gained, led by Technology, which was up 1.33 percent. In total, the CAC was up just over one-tenth of a percent to 4017.67. Telecom group Iliad had its recommendation raised to “buy” from “neutral” by Deutsche Bank, pushing its shares up 4.6 percent, the largest such gain since October. PSA Peugeot Citroen surged 6.4 percent also was raised to “buy” by Bank of America.

DAX                         6034.33                    +2.47             +0.04%
German stocks traded near their highest level in over year as automakers offset losses by telecom companies. The DAX, despite gaining 24.0 percent in 2009, is still down nearly 50.0 percent since July 2007. The German Purchasing Managers Index of Services for December measured at 52.7, down from 53.7 in the month previous, signaling continued expansion for Europe’s largest economy. BMW and Porsche SE climbed at least two percent after boosted sales helped boost recommendations for the stocks. Deutsche Telekom dropped for the second time this week after it was cut to “sell” at UBS.

IBEX 35                     12222.50                   +18.10                 +0.15%
Trading in the Spanish market led to the greatest gain among the major European indices on the day, a meager 0.15 percent, pushing the index up to 12222.50. Six of ten sectors dropped, with all securities in the Technology, Basic Materials, Health Care, and Telecommunications sectors losing ground. Banco Santander rose slightly, and Banco de Sabadell gained nearly 2.0 percent after they were part of a coalition of European banks to sell $7 billion in covered bonds.

S&P/MIB                        23622.29                     +66.56                 +0.28%

Notable Europe Event Risk / Economic Releases

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

European Fundamentals

European Markets Rise as Indicators Point to Improving Outlook

Europe Session Key Developments

•    Indicators Boost Market Sentiment
•    Commodities Flat While Dollar Weakens

European markets ended the session by just under one percent after a volatile spike late in the trading session as US equities opened. Largely affecting trading today were indicator releases including data in Germany, Italy and the UK, as well as event releases for the US. European fundamentals appear favorable as British third quarter GDP was revised to a smaller contraction, while mixed reports from the mainland were evident in a fall in German confidence while Italy’s increased. Meanwhile, data in the US led to volatility in Europe as figures showed improvement in spending at the expense of durable goods, while home sales increased along with fewer jobless claims. Commodities had a light effect on the session, hovering near recent levels while Gold surged to a new high on continued weakness in the US dollar. Ultimately, markets remain in a fragile state below recent highs with further declines in the greenback likely to boost asset prices. Consequently, equity markets will continue to rally pending no change in tone from ECB and US central bankers. A crucial concern going into the final months remains whether traders see the market as overbought. Several of the major indices remain off their mid-October highs, but have rallied some 30% since July lows.

FTSE 100                      5,364.81                   +40.85               +0.77%
British stocks rose the most of the five majors with a gain shy of one percent as approximately two-thirds of stocks rose. Largely affecting the gain in the UK was a revision to GDP that came in better than the initial contraction estimate. Health Care rose the most at 1.8% while four other sectors also advanced more than one percent each. Leading movers today included BHP Billiton up 3.1% while Vodafone increased 1.72%. Ultimately, British stocks appear favorable to other European indices as central bank caution will limit investor angst over rate increases, while further dollar weakness will bode well for raw material producers.

CAC 40                     3,809.16                  +24.54                 +0.65%
French equities posted gains across nearly all sectors while approximately two-thirds of stock advanced. Leading the move were greater than two percent gains in Consumer Services and Telecom. Media firm Vivendi led with a gain of more than four percent as news of its talks with GE on NBC Universal continued. Overall, the French economy is growing faster than its counterparts according to recent PMI data, although stocks don’t seem to reflect this same success with the index posting the lowest gain in 2009 of the five majors.

DAX                         5,803.02                  +33.71              +0.58%
German equities posted gains in seven of nine sectors while financials actually fell slightly amid a report by the Bundesbank of an additional €90B in loan and securitization losses that have yet to be written down by the nation’s major banks. Volkswagen shares fell the most at nearly three percent despite comments by CEO Winterkorn that sales this year will have exceeded the previous year. Ultimately, the index may outperform its neighbor in the coming months as improving trade stands to have a larger benefit on German, where much of the GDP figure is reliant on a trading surplus.

IBEX 35                     11,965.80                   +60.60                +0.51%
Stocks in Spain climbed more than half-of-one percent as most sectors advanced while Banco Santander and Telefonica led movers with gains of nearly one percent each. Ultimately the day included minimal volatility with only one stock up more than two percent while no firm saw a loss of one percent or more. Overall, the index remains the best performer on the year-to-date with an increase of 30.12% as global recovery will bode well for emerging nations in the Americas, a significant source of revenue for many of the nation’s top firms.

FTSE MIB                        22,741.85                    +33.40                  +0.15%
Italy’s benchmark index closed higher with the smallest gain of the five majors as the heavily-weighted financial sector limited the advance. Overall, most stocks fell on the session including Italy’s largest bank, UniCredit, which fell 0.52%. Elsewhere, automaker Fiat led losers with a fall of 1.58%. The index has now traded in a tight 500 point range in the past four trading sessions and concern remains whether the FTSE MIB, still more than 7% off its mid-October highs, has further room to retrace.

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

European Fundamentals

Oil and Metals May See Support from US Data, Dollar Correction

Commodities – Energy

Crude Prices May See Support from US Housing, Durable Goods Data

Crude Oil (WTI)        $79.30       -$0.25       -0.31%
As expected, crude oil prices corrected higher to re-test the $80/barrel level and have been consolidating between this and support at the $78 mark. A break lower targets just below $77. Fundamentally, the US economic calendar looks compelling with New Home Sales and Durable Goods Orders for September on tap for release. Improvements are expected on both fronts and may boost prices considering the US construction sector is the world’s top consumer of crude oil while a rise in the demand for durables may reveal higher vehicle sales and thereby point to greater fuel demand. Third-quarter earnings reports from tire maker Goodyear and oil giant ConocoPhillips may also prove market moving.

Commodities – Metals

Gold, Silver May See Support from ArcellorMittal Earnings, US Dollar Correction

Gold       $1037.40       -$2.65       -0.25%
Gold positioning is largely unchanged from yesterday, with prices consolidating between near-term support above $1037 and the pierced bottom of a channel that had contained trading for most of this month. Fundamentally, a bit of upside momentum may emerge after the release of better-than-expected third quarter earnings from steelmaker ArcellorMittal offer a broad boost to commodities in general and metals in particular. The aforementioned US economic data releases will help guide risk trends and the US Dollar, thereby extending their effects to gold rates late into European trading. The greenback has chalked up four consecutive up days and a bit of a correction may be due.

Silver       $16.62      -$0.08        -0.48%
Silver prices validated yesterday’s technical outlook, racing lower to find support near $16.75, the 9/30 swing high. Fundamentally, the broad trajectory of risk sentiment is likely to dominate. Near-term support lines up in the $16.40-16.50 region, with a sustained push below that opening the door for a move to test the monthly low at $15.90. Any significant help from the ArcellorMittal earnings report or US Dollar weakness may force a re-test the $17 mark, especially considering momentum readings are now in oversold territory.

European Fundamentals

Oil, Metals Threatened as Risk Appetite Stumbles

Commodities – Energy

Crude Vulnerable as Markets Begin to Shy Away From Risky Assets

Crude Oil (WTI)      $80.79       -$0.58       -0.71%
Crude prices have backed off a bit after barreling through the key psychological barrier at the $80/barrel level in US trading and are now re-testing the juncture on the downside. From a technical perspective, the picture is largely the same as it has been for most of this month, with prices trending higher in a well-defined rising channel. If this pattern is to hold, the $80 level should offer support and a foundation for the next push upward. However, the dynamics of risk sentiment appear to have been shifting rapidly since the end of the Wall St session and the opening bell in Asia. Traders latched on to slightly worse than expected (but still the highest in a year) Chinese GDP figures and the downgrade of Wells Fargo, the largest US home lender, by a single out-of-consensus analyst to send the MSCI Asia Pacific regional equities benchmark index down over 1 percent and weigh by about as much on European equity futures. This hints that investors are becoming jittery at current highs and worried about being the last ones out as the (arguably inevitable) downward correction materializes. The correlations between stocks, crude, and the US Dollar remain potent and, with the WTI contract less that $1 above the critical $80 mark, traders may be in for a near-term trend-defying breakdown if risk aversion continues to dominate the equities landscape going into the New York session. A break out of the rising channel initially sees support around $78.17.

Commodities – Metals

Gold, Silver Outlook Hinges on Risk Sentiment as Confidence Falters

Gold       $1057.22        -$1.84       -0.17%
As with crude oil, gold prices are likely to find their most potent catalyst in the overall trajectory of risk appetite, with the cues from Asia and Europe distinctly bearish for the time being. That said, a host of high-profile earnings reports are set to cross the wires and things could change very quickly. The economic data docket is largely uneventful, with only September’s US Leading Indicators report likely to generate any significant interest from the market. Technically, prices remain confined in the same $20-25 range that has characterized price action for much of this month.

Silver      $17.58       -$0.12       -0.66%
Yesterday’s price action followed a familiar dynamic, with silver mimicking the trajectory of its more expensive counterpart but failing to deliver an equally robust result. Technically, a descending triangle looks to be forming above the key $17.15–24 support region, hinting at bearish bias that favors a break below the $17 handle to challenge $16.75.

European Fundamentals

Oil Loses Steam Ahead of $80, Metals May Falter on US PPI

Commodities – Energy

Crude Loses Momentum Ahead of $80, US Construction Data Looms Ahead

Crude Oil (WTI)       $79.26        -$0.35       -0.44%
Crude prices have turned lower after failing to build traction above the psychologically significant $80/barrel level. The fundamental landscape offers room for further losses with September’s US Housing Starts and Building Permits data set to cross the wires. The American construction sector is the world’s largest consumer of oil, and positive readings here could add a much-needed story about rising demand to the more portfolio-driven catalyst of US Dollar weakness and inflation hedging. While expectations do in fact point to slightly higher figures from the previous month, yesterday’s unexpected drop in the National Association of Home Builders (NAHB) measure of construction-sector confidence may be hinting at a disappointing outcome. Technically, prices are testing below the lower boundary of a near-term Rising Wedge formation with momentum studies still negatively divergent coming down from overbought territory, which opens the door for a move to test support near $78 at the lower boundary of the rising channel that has guided prices higher since the beginning of the month.

Commodities – Metals

Metals Trading Focused on Risk, US Dollar but PPI Could Make a Splash

Gold       $1063.57       -$0.63        -0.06%
Gold rebounded test resistance below $1070 but prices now look on pace to form a double top, showing a Bearish Engulfing candlestick formation. Near-term support is seen at the top of a minor rising channel that was broken earlier, with a move lower to target just above the $1050 figure. The fundamental picture remains closely linked with equities and the US Dollar: A slew of high profile earnings reports are due late into European hours before the opening bell on Wall St, with positive outcomes likely to weigh on the greenback and boost optimism about the global economic recovery, both of which are gold-positive. That said, tomorrow’s US PPI figures may present potential for a downswing. A disappointing outcome (particularly in the Core PPI reading that excludes food and energy) would help to ease some near-term concerns about future inflation and help validate technical positioning.

Silver       $17.23        -$0.11       -0.62%
Fundamentally, the drivers remain much the same as with gold. The technical picture looks a bit less bearish, however, with prices unable to re-test the previous swing high above $18 and faltering below the figure. The $17.15–24 region remains critical, with sustained break below that paving the way for a move below the $17 handle to challenge $16.75.

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