European shares regain lost ground

Trading remains volatile this morning but within a fairly tight range as the European markets manage to make a positive break despite Wall Street and Asian markets tumbling. Following a heavy day of losses yesterday which seen the FTSE close down 1.7% on fears over Spain’s finances, the markets this morning are slowly regaining some lost territory.

Miners, Energy stocks and financials are leading the FTSE higher making up for yesterdays strong sell off. Vedanta is trading up over 2.3% after announcing that shareholders will get the right to vote on changes to the group’s structure, including a merger of two subsidiaries Sesa Goa and Sterlite on 15 June. Banking stocks also took the opportunity to make up some lost ground on the lack of fresh news on the eurozone crisis, Lloyds gaining almost 2% in early trading. Energy stocks also provided a strong support to the blue chip index following a recovery in the price of crude oil.

As we progress through the week towards the nonfarm payrolls on Friday, economic data has been playing an increasingly important role in shaping investors trading decisions. This morning German retail Sales figures came in better than expected, showing a growth of 0.6% month on month compared to the forecast 0.2%. Additionally French consumer spending grew faster than expected at 0.4% on an annualised basis. These positive figures helped the FTSE start the day on the front foot with an early rally of 20 points.

Furthermore unemployment in Germany also fell slightly to a seasonally adjusted 6.7%, as the number of people in jobs rose 0.4%. However these strong figures highlight further the growing differences between central European countries and the peripherals. Doubt whether the Spanish Government can get public finances under control in addition to the continuation of the banking crisis with Bankia, has had a devastating effect on already fragile markets. Spanish shares have pushed down to a 9 year low and the Spanish cost of borrowing is heading towards 7%, whilst many foreign investors are already shunning Spanish debt. On a positive note the European Commission said yesterday that it may give Spain an extra year to cut its deficit t to 3%.

The focus will remain very much on economic data as inflation data for European will be released later this morning and this afternoon attention will be very much on the US GDP and Employment changes.