Member Article

Markets higher on Merkel-Sarkozy promise

Investors sought some comfort from European developments over the weekend; markets buoyed by a promise of action by the French and German leaders. Following a meeting in Berlin yesterday, Angela Merkel and Nicolas Sarkozy announced that their goal was to come up with a plan for Greece, the wider European sovereign debt crisis and bank recapitalisation before the next G20 summit in early November, although details were lacking.

The market was also reassured by decisive action from the French, Belgian and Luxembourg governments who, after a 14 hour board meeting yesterday, established a restructuring plan for the troubled bank Dexia. It was agreed that the Belgian authorities would purchase Dexia Bank Belgium, paying €4bn for the domestic retail division of the company. Whilst talks were ongoing for the sale of its Luxembourg unit, the three aforementioned governments committed up to €90bn in guarantees to Dexia, ensuring it was sufficiently funded for the next decade.

Additional support may have been taken from German export data this morning that showed a 3.5% increase in exports in the month of August, widening the trade surplus more than anticipated. With news flow predominantly positive, the FTSE 100 gradually gained ground throughout the morning, posting a 1% gain by midday. It was led higher by financial services, energy and mining companies, the latter two boosted by increases in their underlying commodity prices. Sentiment was given a further boost at the US open, the 2% gains seen on the S&P and Dow Jones Industrial Average boosted European indices to a similar level.

Arm holdings was top of the FTSE leaders, the technology chip maker experiencing an 6.6% gain following a strong start to sales of Apple’s iPhone 4S, a device which uses the company’s technology. Among the relatively few decliners on the index was Imperial Tobacco, the defensive nature of the stock ensuring it traded lower by around 1% as the risk rally directed investors to more cyclically geared assets. This trend saw strong gains for the Euro, which ended the day up 2.2% against the Dollar. The FTSE finished at 5399, higher by 96points or 1.8%, and towards the top end of a trading range that it has followed since the start of August.

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