FTSE gains 1 but caution needed

Stocks across Europe saw a strong bounce on Friday after the Italian Senate passed the Financial Stability Law, a crucial austerity package aimed at reducing the debt laden country’s spiralling deficit.

By afternoon trade, the FTSE 100 had gained 1.4% whilst the DAX and CAC also saw stronger gains of 2%, led chiefly by gains in banks and insurance firms as investors attempted to bargain hunt stocks which had been aggressively sold off earlier this week.

With the Italian austerity package now passed into law, the market’s next focus on Italy will be how quickly the country can move to shore up its political house, and the speed at which Mr Berlusconi can be replaced by a government of unity is likely to be crucial in this phase.

The fact that Italian bond yields have continued to recede has helped to ease investor concerns over an immediate escalation in the Italian debt crisis, though there remain significant fears that the crisis could escalate imminently.

It could be folly to read today’s gains as investor sentiment changing to the positive front, with still so much at risk in the eurozone and so as such, gains remain fragile and open to reversal depending on the headlines out of Rome and broader Europe. Being a Friday, we have seen the usual low volumes and so this is most likely exacerbating today’s index gains, and so caution may be needed in thinking that the rally is a sign of large appetite for risk.

In terms of individual stock movers, Schroders is the top gainer in the FTSE 100, with its shares rising 4.4% after Deutsche Bank upgraded their view on the stock to a ‘buy’ from an original ‘hold’ recommendation. The upgrade was dictated by the company outperforming original expectations with their third quarter earnings and Deutsche now says that negative news has been already priced into the banks share price, which has fallen below their original target of 1350p.

Shares of international Consolidated Airlines Group also rose strongly on the back on a positive trading update to the market this morning. Shares rose 4% after the group said that cost savings from the merger between British Airways and Iberia would be higher than original expectations at €450 million, whilst it also set a new operating profit target for the merger of €1.5 billion in 2015, boosting shareholder optimism.

Premier Foods’ share price hit a new one-month high today, rallying 29% as the share price recovery continues to gain some tentative momentum.