European Indices swing between gains and losses as short selling ban starts

European indices swung between gains and losses on Friday in early trade, with gains in key mining stocks tempered by weak energy firms who tracked a 1.5% fall in the price of crude oil. An early 1% fall in theFTSE 100 in the first 10 minutes of the session was quickly turned around to trade higher by 0.8% on the day by mid morning, with similar gains seen in the CAC and DAX.

The gains have been energized by strength in mining and banking stocks, with both sectors gaining over 1% in London trade. For now it seems that the short selling ban on financial firms in Italy, France, Spain and Belgium is helping to lift banking stocks but deep questions remains over the sincerity of the rumours that gripped French banks this week and of the credibility of the short selling ban itself.

A rollercoaster week for stock markets
It’s been a rollercoaster week for the financial markets, with investor sentiment chopping and changing almost on an hourly basis but interestingly enough the FTSE 100 is on course to close relatively unchanged on the week despite having a trading range of some 500 points.

Investors have been fighting against their somewhat natural tendencies to bargain hunt some of the badly beaten down stocks this week with continued nervousness and uncertainty over global growth hampering any longevity in buyer demand. This has made any market rally particularly choppy in nature and short term.

European markets have closely tracked behaviour in US markets every afternoon this week, which also indicates that investors are struggling to pick the market direction and are therefore tentatively reacting to any bit of news, data or rumour, and this is exacerbating the choppiness of the markets.

History shows short selling bans change little
The move to ban short selling of financial stocks in France, Italy, Spain and Belgium for 15 days, a move made to restore stability in financial stocks at a time of swirling rumours about liquidity, has been met with a reaction of antipathy in the markets. In truth there are serious doubts as to whether it will actually change anything in the long run. If one takes a look at previous short selling bans, such as the mass one encompassing 799 banks in the aftermath of the Lehman crisis, did it prevent banks shares from plummeting? No.

This is a knee jerk reaction to the sharply bearish moves seen in financial stocks in France and broader Europe over the last few weeks but in truth, whilst 15 days, the length of the ban so far, may be a long time in the markets, it is not a long time for investors who are gripped with uncertainty. Moreover, any ban that stops investors from acting in legitimate way goes directly against the ‘free market’ principal and reeks of further suspicion.