European markets closed higher for a second day as gains in the financial sector and calming credit conditions lifted stocks higher. Financial firms have continued to rise in recent weeks as banks followed through on their comments with profitable first quarter results.
[U][B]Europe Session Key Developments[/B][/U][B]
• ECB Policymakers Appear Divided on Further Action
• Financial Firms in US Show ‘Positive’ Results
• Fundamental Indicators Show Ongoing Weakness
European Stocks Rise as Investors Eye Calm Future Despite Deepening Recession[/B]
European markets closed higher for a second day as gains in the financial sector and calming credit conditions lifted stocks higher. Financial firms have continued to rise in recent weeks as banks followed through on their comments with profitable first quarter results. Citigroup and General Electric added to the optimism today as the firms joined others including JPMorgan and Goldman Sachs in reporting positive results. Also raising risk appetite is the LIBOR-OIS spread which narrowed for the 14th day to 1.10%. Despite the gains in finance and clear signs of improvement in lending, the Euro region remains in dire straits as ECB policymakers appear divided on what actions the bank needs to take. Council members disagree on whether the rate should be cut below one percent and whether the central bank should consider debt purchasing and other tools. The tension stems from sharp differences in the strength of European economies which share a single currency and monetary policy but lack a united fiscal spending front. Adding further downside, fundamental indicators for February showed that the construction and industrial orders continued to decline. Lagging indicators however have largely been ignored as visible signs of improvements in March and April, along with stabilization in the financial sector, have kept investors looking forward to a quick recession and positive growth in 2010.
[B]FTSE 100 4,092.80 +39.82 +0.98%[/B]
Equities in the UK rose nearly one percent as the telecom sector rose more than four percent and financials gained 2.63% on the day. Lloyds and RBS led advancers, rising 16.61% and 14.34% respectively, as investors were optimistic following positive earnings from Citigroup and GE. Insurer Aviva also rose 12.25% on the wave of risk appetite. Vodafone led the large gain in telecom with a 3.89% move on the day as Morgan Stanley reiterating its ‘overweight’ rating on the firm citing strong fundamentals for the firm relative to economic weakness and competitors. Investors across equity and currency markets show a bias supporting the government’s actions to strengthen the economy and seem to believe that conditions in the UK, which continues to use the British Pound, are healthier compared to the Euro-Zone.
[B]CAC 40 3,091.96 +53.78 +1.77%[/B]
Stocks in the French market closed higher in all sectors with the exception of consumer goods falling 0.34%. The financial sector led with a 4.36% gain followed closely by a 3.81% rise in technology stocks. Lender Dexia led with a 13.95% gain followed by automaker Renault posting a 10.15% advance. Downside in the French market was limited to just over four percent losses in personal care firms Accor and L’Oreal and just eight of forty stocks on the index posted declines.
[B]DAX 4,676.84 +67.38 +1.46%[/B]
The German market posted a considerable gain as healthcare and consumer goods sectors rose more than three percent along with financials see upside of just over two percent. Leading advancers was steelmaker Salzgitter with an 8.63% gain as Credit Suisse raised its recommendation for steelmakers to “overweight.” Deutschebank rose 6.23% as financial firms across markets see upside following positive releases by major US banks. The final session of the week ended with 21 of 30 stocks trading higher and optimism looking ahead to next week’s releases including the upcoming ZEW Surveys.
[B]
IBEX 35 9,030.90 +156.40 +1.76%[/B]
Three out of four stocks in Spain’s IBEX posted gains on the final session of the week as eight of the nine sectors rose and consumer services fell just 0.04%. No firm lost three percent or more on the session and gains of more than four percent were limited to just two firms. Builder Sacyr Vallehermoso extended its gains by 4.63% on the session, nearly doubling its stock price since bottoming in early March. Also rising 4.16% was electricity network operator Red Electrica.
[B]S&P/MIB 18,510.00 +356.00 +1.96%[/B]
The Italian index rose the most of the five major indices tracked with a nearly two percent gain on the day. Technology led with a 5.04% move higher trailed by a nearly three percent gain in consumer goods. Financials also rose over two percent, continuing its advance as investors see stability in banks and improvements in lending conditions. Lender Mediobanca rose 7.11% followed by automaker Fiat with a 6.9% gain. Italy’s largest carmaker saw its shares move higher as investors expect a deal with Chrysler to come in the weeks ahead.
