More gains seen in Europe whilst FTSE 100 plays catch up

More gains were seen in Europe today continuing on the back of a strong Monday session with the DAX and CAC both trading higher by 0.6%, whilst the FTSE 100, which was closed for a Bank holiday yesterday, was playing catch up with strong gains of 2.5%.

The DAX and CAC both gained strongly yesterday, rallying over 2% as investors started the week on the front foot, albeit in very thin trade, boosted by positive news on banks after the European Commission stated that a fresh round of bank re-capitalization was not needed. A similarly positive session in US markets last night, which saw the Dow Jones and S+P both gain over 2.5% also helped European trader sentiment on Tuesday.

The FTSE 100 has therefore started very strongly indeed on Tuesday, as most traders in the UK attempted to play catch up to gains seen in European and US Index peers yesterday, helping the FTSE to trade higher by 2.5% or 130 points. The FTSE rally was turbocharged by 4% sector gains in the heavyweight mining, banking and insurance sectors with banks Barclays, Lloyds and RBS the top gainers on the day, rallying between 6% and 8%.

Bank demand was no doubt helped by a positive note on the sector from Deutsche Bank, who highlighted to clients that the ‘sector valuation will prove attractive.’ The firm also highlighted Barclays as their top sector pick.

With such an intense focus on any news, data or event that could trigger price moves, the rally we have seen today remain open to early bouts of profit taking and choppy trading. Most rallies we have seen this month have been short lived and whilst the positive start to trading seen this week will help to calm some nerves, there has not been a dramatic change in sentiment that would indicate this trend of short lived rallies may end yet.

The bank holiday weekend would have provided a much needed rest for traders after a month of trading to forget about, having seen the FTSE 100 lose 12% on the month up to last week’s close as traders fled to defensive safe haven assets. The fact that traders in the UK are returning from their long bank holiday weekends to see gains of over 2% for the DAX, CAC, Dow Jones and S+P will have undoubtedly given them a much needed confidence boost. That said, there remains much uncertainty and whilst QE3 was not announced by Bernanke at Jackson Hole on Friday, attention will immediately switch to the next FOMC meeting in mid September, which has been extended to a two day event, where the market will hope Bernanke’s appetite for QE3 may have increased. To help to gauge the likeliness of this, all major US economic data will be watched with keen eyes, particularly Non Farm Payrolls on Friday.