Sharp US turnaround leads Europe higher

A sharp turnaround in the US markets last night, where the Dow Jones rallied as much as 6% in the final hour of the trading session, has helped to lock in a positive opening for European stock indices. The FTSE 100 rallied over 1% as a result, whilst the CAC rose 1.7% and the German DAX saw the most gains, trading higher by 2.5% in the first 30 minutes of Wednesday’s session.

What we are seeing right now is a relief rally, energized by bargain hunting and helped by the Fed’s pledge to maintain interest rates at exceptionally low levels until 2013. With the FTSE 100 falling to a 20% low yesterday from its years highs, investors are looking to pick up some of the more badly beaten down stocks on speculation of a short bounce. This is what we have seen so far in tentative stages.

However, trading remains highly volatile and the rallies we have seen have been choppy in nature too, emphasising that traders remain on edge. The FTSE 100 needs to break back above 5400 if we are to be convinced that this relief rally has legs. Given the tension that remains in the market, traders need to be wary of early bouts of profit taking, which is likely to keep rallies choppy.

From a sector perspective it’s the mining and banking stocks that are the energy behind today’s gains in a repeat of yesterday’s session. The mining sector, which up until yesterday’s lows had lost 25% in the last six days trading, rallied over 2.5%, supported by a 2% increase in the price of Copper. Banking stocks also saw gains of 1.5% in early trading mostly on investors bargain hunting.

All eyes will now be on the Bank of England Inflation Report where we are likely to see yet more downward revisions on UK GDP. Traders will how to use this to further gauge the likely path of future interest rate decision by the BOE.

Standard Life results cheered
Investors cheered results from Standard Life, who reported higher than expected profits for the first half of the year.  The firm saw a 44% jump in h1 pre-tax profits to £262m, higher than market expectations of £198m, whilst also raising their dividend by 5% to 4.6p. The results were enough to lift Standard Life’s share prices over 3% on the day.

TUI Travel shares lifted by earnings
Shares in TUI Travel were lifted by 7% in trading on Wednesday after the travel firm reported a 57% jump in half year earnings to £88m and said that it was on track for its full year guidance estimate of around £470m. TUI Travels shares have lost around 40% from January’s highs but have broadly outperformed that of rival Thomas Cook, whose shares have fallen as much as 70% in the same time frame.