EU stocks rally for second day but gains remain choppy

European stocks enjoyed a second day of gains but most price rises remained very choppy and open to reversals, a factor influenced by fragile sentiment and low volumes.

The FTSE 100, DAX and CAC saw early gains of 2% as traders bought into heavyweight mining stocks on better than expected data from Chinese PMI, which grew to a two month high of 49.8 in August when investors initially feared a fall towards 49.0. However, as the session progressed, Index gains weakened and the FTSE 100 initially traded back into negative territory dragged down by a sharp reversal in mining firms, typifying the fragility of market gains at a time when there is a lack of positive news flow to justify investors holding onto gains for any long term period.

The afternoon session saw European stocks track trading in the US, and with the Dow Jones and S+P both trading higher by 1%, this helped to lift the FTSE back into positive territory towards the closem though mining shares remanied under pressure.

One gets the feeling that expectations are being raised for what may come from the meeting at Jackson Hole later in the week, whilst certainly it has been one the quieter weeks of the month so far with many investors happy to take a breather and sit on the sidelines, and this can make moves slightly more volatile.

Mixed bag of economic data

It’s certainly been a bit of a mixed bag of economic data today. The Chinese data, whilst positively outperforming market expectations, saw PMI still below the crucial 50 expansion level. The reaction shown from investors was more about relief for not seeing a bad number than cheering a good result. Euro zone PMI data was fairly mixed whilst there was also a much sharper drop in German ZEW business confidence than expected, falling 37.6 when the market had predicted a 25 fall. This should in truth not be too much of a surprise considering the sentiment indicator came in the midst of the very sharp 15% – 20% falls seen in equity markets earlier this month, which would have undoubtedly exacerbated the fall in the Index. On the positive front, UK factory orders surprisingly rose in August when a fall was expected, whilst UK mortgage approvals hit a one year high. Given the mixed bag of data seen today, it’s hardly surprising to see investors unsure which way to read them.

G4S and ARM Holdings top the FTSE

One of the stocks leading the charge higher was ARM Holdings, whose shares rose over 4% as investors speculate that the recent upsurge in technology merger and acquisition activity could see the chip maker become a bid target itself. Shares in G4S also saw strong gains on the day, rising 8.5% after the security firm posted a rise in H1 profits to £239m. The increase in profits was broadly in line with most expectations and the confident outlook for the rest of the year, which the firm said it had seen increasing outsourcing and acquisition opportunities leaving it well placed, has also supported its share price rise today.