European indices enjoy more gains but traders still edgy

European indices enjoyed more gains on Friday, helping to make inroads to the heavy losses endured during the early part of the week in response to the tsunami and subsequent nuclear instability within Japan.

The two sectors that have led European index recoveries from their recent 3-month lows have been the energy and mining sectors and this remains very much the trend this morning. We have seen solid gains in heavyweight stocks BP, Royal Dutch Shell and Rio Tinto with commodity prices gaining ground despite the US dollar being somewhat stronger this morning.

One of the weaker sectors in London has been the pharmaceutical sector, which is typically seen as somewhat of a safe haven. That said, I would not read too much into today’s pharmaceutical firms’ weakness as an indicator of a return to risky appetite for investors just yet. Several tensions remaining over the Japanese nuclear situation and the UN vote for a no fly zone in Libya are likely to keep traders somewhat sensitive, particularly having seen the price of crude oil jump in the last 12 hours.

The move by the UN to agree to a ‘no fly zone’ over Libya, and Gaddafi’s seemingly undeterred resilience in the face of this unilateral action by nations such as the UK and US heightens the potential for further escalation in the confrontation in the region and subsequently oil prices have nudged higher as a result. The spikes in oil prices over the last 12 hours is a bit of a warning sign for investors, who do not want to see oil prices hit new heights having come off in the early part of this week. However, should last night’s ‘no fly zone’ agreement by the UN turn into air strikes on Gaddafi’s forces, this could certainly be an aspect traders may react to.