Banks help keep European stock markets rally alive

Banks help keep European stock markets rally alive

Paris: European stocks were higher on Thursday, ahead for a fourth day as investors looked for bargains among beaten-down banking and cyclical stocks, in thin markets ahead of the Jackson Hole central bank conference.

The FTSEurofirst 300 index of top European shares was up 0.4% at 940.56 points at 1130 GMT.

Banking shares rallied, led by Credit Agricole, up 6.7%, after the French bank reassured investors on its fundamentals as well as on its access to liquidity to withstand even a complete shutdown of funding from US money markets.

Other banks also gained ground, with Danske Bank up 5.7%, Intesa SanPaolo up 4.6%, and Credit Suisse up 2.4%.

Investors remained cautious on the sector, and the European equity market in general, as a ban on short selling of shares of financial institutions and related derivatives in some markets was due to expire on Friday.

Italian newspaper Il Messaggero reported that stock market regulators in Belgium, France, Italy and Spain planned to extend the ban until the end of September. The French regulator said it would make a statement on the matter on Thursday.

The STOXX euro zone bank index has lost 1.8% since the short-selling ban was put in place on 12 August, following a 34% nosedive in three weeks.

The ban, which also prevents investors taking short net positions using futures and options (F&Os) based on equity indexes such as the Euro STOXX 50 and the CAC 40 , has hit derivatives desks, which cannot bet against the indexes.

Jackson Hole meeting in focus

Investors were awaiting a meeting in Jackson Hole, Wyoming, where central bankers and economists from around the world are gathering this week.

US Federal Reserve chairman Ben Bernanke’s speech on Friday will be closely watched for clues over whether the Fed is planning further steps to revive a stalled economic recovery.

“Everyone is waiting to see what comes of the Wyoming meeting. I would be uncomfortable being aggressively short going into the weekend. And corporate results do not look too bad." said Schroders fund manager Andy Lynch.

The euro zone’s blue chip Euro STOXX 50 index was up 0.9% at 2,259.30 points, slightly above its first key resistance level from the recent 26% nosedive in three weeks, the 23.6% Fibonacci retracement.

Valerie Gastaldy, head of Paris-based technical analysis firm Day By Day, said there were not enough technical signals to say that this week’s rally will last, and another pull-back may be on the cards.

“We do not have the proper ingredients to anticipate a rise in the short term. The configurations are still in favour of a resumption of the decline, but we do not yet have the intraday patterns that confirm this movement," she said.

Still, a number of long-term investors were looking into the debris left by the market’s recent plunge, seeking buying opportunities as calm returns and safe-haven assets such as gold sharply retreat from recent peaks.

“The good thing with such a violent drop on the stock market is that it brings buying opportunities, with a potential for a rebound of between 14% and 20% in the next 5-6 weeks, even if volatility remains high," PrimeView strategist Pierre Sabatier said.

“Despite the clear deterioration of the medium and long-term economic outlook, the correction in stocks -- even related to a recession -- never translates into a linear downturn in stocks. So a 15% rebound is probable in the next two months. After that, the market’s direction will certainly be more complicated."