European equities closed off the volatile session with gains following conflicting data and news releases. Market volatility came on the back of positive prospects from a few key metrics, some of which are pointing to stability in the financial sector.
[U][B]Europe Session Key Developments[/B][/U]
[B]• Markets Drop From Earlier Highs On Poor US Housing Data
• Markets Bounce As Libor Continues To Decline, A Positive Sign For Bank Confidence
• US Banks Show Strength By Applying To Pay Back TARP[/B]
European equities closed off the volatile session with gains following conflicting data and news releases. Market volatility came on the back of positive prospects from a few key metrics, some of which are pointing to stability in the financial sector. The 3-month Libor for example continues to decline even further. This is a positive sign that bank confidence has risen and that capital may be more readily available in the near future. Meanwhile several banks in the US have applied for repayment of government TARP loans. These actions could signal signs of confidence in the banking sector and what could be the start of stabilization for one of Europe’s largest trading partners. Even so, US Housing Starts data showed a worse-than-expected decline in activity, counteracting some of yesterday’s optimism and challenging the notion that the US housing industry might have bottomed. The effect on the European markets is due in part from the interconnected nature of global markets and its financial institutions. A recovery in Europe will depend to a degree on a turnaround in the US. Despite the market optimism, it is important to remember that the European economy will remain fundamentally weak for some time. Loan exposures linger in the holdings of financial institutions. Even with a declining Libor, in a recessionary environment these loans are likely to show further losses and limit the extent to which lending can recover. As a result, the Euro zone will take many months to establish a steady and healthy turnaround. As it stands, optimism rather than hard data has fueled these market rallies. If this is indeed the case, the past sessions’ gains have the potential to reverse in the short-term.
[B]FTSE 100 4482.25 +35.80 +0.81 %[/B]
UK equities were pushed up by strong gains in the Basic materials sector, which gained 4.11%. The Financials sector also gained 3.49%. Market movers by volume in the sector were RBS and Barclays PLC, both gaining 4.36% and 4.99% respectively. Telecoms offset strength in the index declining over 3.22% after Vodafone announced that write-offs from its Turkish and Spanish Operations would nearly halve its profits and the company would speed up cost-cutting plan to be implemented earlier.
[B]CAC 40 3274.96 +29.57 +0.91%[/B]
Solid strength was seen in almost all sectors but was offset by declines in the health care, telecoms and oil & gas industries, which declined 0.69%, 1.89%, and 2.57% respectively. Major market movers by volume were Alcatel-Lucent, which gained 3.65% after announcing subsidiary LGS, won a bid from the United States Department of the Army that totals to $6.3million. Arcelor-Mittall also showed an impressive 6.45% gain after announcing it may halt output from its Kazakh operations pending agreement from labor unions.
[B]DAX 4959.62 +107.66 +2.22%[/B]
The German index showed the most strength in all of the European markets, let by the Industrials and Financials sectors, gaining 4.67% and 3.88% respectively. Siemens-AG-Reg buoyed the industrials with a gain of 5.29% after announcing it would supply 175 wind turbines to the London Array Wind Project. Thyssen-Krupp AG also gained 5.18% after announcing it would close the sale of three industrial units as soon as September. Some weakness in Telecoms was seen as Deutsche-Telekom’s quarterly earnings fell in line with expectations.
[B]IBEX 35 9341.60 +182.30 +1.99%[/B]
The Spanish Index showed strength as well lifted by Basic Materials and Financial sectors which gained 5.11% and 2.99% respectively. Aceronix gained 3.88% after announcing it would raise steel prices by €100 per tonne. Banco Santender helped push up financials after news was released that S&P had assigned preliminary ratings on a £2.0 billion note of which Santender is the originator.
[B]S&P/MIB 20172.00 +219.00 +1.10%[/B]
The Consumer Services and Financial sectors kept the index in the positive for the day with gains of 2.8% and 2.19%. Strength in consumer services came as AutoGrill Spa gained 8.91% after being added to “overweight” list at Unicredit Spa. Unicredit SPA itself also gained 4.5% after it announced requests to the Italian government of over €2.0billion in aid in order to bolster capital. Weakness was seen in Telecoms despite announcement that Vodafone had made an offer to struggling and debt-heavy Telecom Italia for its German unit.
[I]-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to <Stifigiu@fxcm.com>[/I]