Commodities lead European stocks higher German court rejects bailout block

A late rally in US markets last night and a positive session in Asian trading this morning has helped to convince bargain hunters to make their move in Europe today, helping to lift the FTSE, DAX and CAC higher by over 2%.

A ruling in the German Constitutional Court to reject a series of lawsuits aimed at blocking German participation in eurozone bailouts was well received by the market. Most investors had expected the ruling, although given the sensitivity of market sentiment there was natural caution for any surprises. The fact that the ruling was ‘tight’ in terms of voting, reminds us of the fragility of German support for the bailouts given the public antipathy towards such support, a fact typified by Merkel’s fifth consecutive election loss recently.

Resource driven stocks have been leading the charge higher in Europe today, with miners and oil firms seeing a strong bounce as investors buy into firms with the price of copper and crude oil both rising over 1%. The FTSE 350 mining and oil sectors rose over 2% in early trade as a result.

Investors are battling between nervous uncertainty over the sovereign debt crisis, which is hampering longer term share demand, and near term bargain hunting, having seen equity prices fall sharply over the last six weeks. This battle is happening on a daily basis and contributing to some violent swings for EU indices. Until the markets can be confident that a rational and credible solution is in the works to combat the eurozone sovereign debt problems, or the Federal Reserve starts to print money, we can expected more volatile price swings in the near term.

UK banks have also seen a bounce back this morning, having seen the FTSE 350 banking sector lose 10% in the last three trading sessions. Naturally the recent falls have attracted bargain hunters who have gained in their desire to make the most of any short term bounce by a stronger session in Asia trading this morning. Lloyds Banking Group was the strongest heavyweight bank performer on today’s FTSE 100, with shares rising 5% straight to the top of the FTSE 100 leader board.

Retail earnings in focus
A number of retail stocks reported earnings today in London, which have taken a key focus.

Dixon’s Retail Group pleased shareholders today by announcing that full-year earnings are on track, despite a 7% fall in like for like sales. Sales were expected to fall compared to this time last year, given the upsurge in sales of electrical goods for the World Cup. The retailer also announced that it was expecting to find an extra £10 million worth of cost savings. Shares rose 5% as a result to the 11p level but remain far from the year’s starting point of 24p.

SuperGroup, the fashion retailer, restored some of its ‘super’ today by reporting a sales growth of 66% for the quarter, an improvement on the previous quarter with wholesales rising 98%, marking strong demand abroad. SuperGroup shares trebled in value nearly a year after it launched an IPO in March last year but have since lost their edge, losing over 40% in the last six months on concerns over slowing growth. Shares rose 3% on the day to trade back above the psychologically important £10 level on the back of today’s earnings.

UK Industrial Production slips in July
Data out this morning showed that UK Industrial Production slipped 0.2% in July surprisingly, raising concerns regarding how UK growth may fare for the quarter. That said, the fall was mainly down to a drop in oil and gas extraction which the Office of National Statistics maintained was due to an ‘unusually prolonged maintenance of North Sea oil rigs’. Stock markets reacted little to the data.”