Member Article

Markets surge despite Italy’s downgrade

European equity markets were in positive territory this morning, buoyed by comment from EU finance ministers overnight who agreed to stand behind the regions troubled banks. They conceded that not enough had been done to reassure markets that the banking sector would survive the European debt situation, and they hinted towards a coordinated approach to recapitalisation. Additional support came in the form of the IMF which suggested it could, hypothetically, step into the secondary market and purchase Spanish and Italian bonds alongside the EFSF. The developments were welcomed by markets, France and Germany higher by around 3% with the FTSE 100 putting on around 2% (100 points) to ascend through the 5,000 point level that was breached yesterday.

The news, combined with yesterday’s heavy selling, appeared sufficient to boost risk sentiment despite Moody’s cutting the Italian credit rating by three notches from Aa2 to A2. The ratings agency cited long term funding risks for the country following a loss in confidence over government debts throughout the Eurozone. This failed to deter investors, with beaten mining stocks and financials leading markets higher.

A revision of the UK’s second quarter GDP was also released today, the figure revised down from its previous estimate of 0.2% to 0.1%. The disappointingly slow growth between April and June was however tempered by additional data showing a surprise increase in UK Services PMI to 52.9 in September, against 51.1 in August. Equivalent data from the US came in roughly as anticipated and private payrolls came in ahead of expectations at 91,000. The news boosted US market futures and helped the FTSE trade higher into the close, finishing up 158 points, or 3.2%, at 5102. The UK was however a relative underperformer when compared to the 4.3% and 4.9% gain on the French CAC 40 and German DAX indices, respectively.

On a stock specific level, the FTSE 100’s top two performers Vedanta and Wolseley both put on more than 8%, whilst Inmarsat was found at the bottom of the index with a 6% fall as it went ex-dividend. Brent crude hovered just above $100 dollars per barrel and gold was roughly flat at $1614 per troy ounce.

This was posted in Bdaily's Members' News section by John Dance .