Stocks bounce higher on a day of choppy trade after China investment report

The FTSE 100 saw gains of around 1% on Friday, whilst peer EU indices the DAX and CAC saw stronger gains of 1.5% – 2% as investors reacted positively to speculation that China was set to invest $300 billion into Europe and the US and continued to digest the output of a new EU accord that isolates the UK.

It has been a very choppy trading session after a morning of somewhat mixed trade, with indices swinging between losses and gains, as investors digested the outcome of the new EU accord between at least 23 of the 27 EU members.

Though it seems that as the day has progressed, investors have started to digest the seeming isolation of the UK better and reacted warmly to the measures announced to bring about a greater fiscal union.

No thumbs up yet
Whilst the attempts to bring about a greater fiscal union is essential, with certain measures such as greater budgetary responsibility and sanctions for growing deficits past the 3% level was well received by the markets, confusion still rages as to how the legality of the ‘treaty within a treaty’ will work. And even more so than this confusion, investors still want to see a greater role of the ECB in bond purchases, a role that Draghi poured cold water on yesterday.

The scale of bilateral loans to the IMF, €200 billion, and the capped €500 billion level of the permanent bailout fund, the ESM, was already well leaked in the markets this week and therefore was of no real surprise. So whilst the reaction in the markets today to the EU Summit thus far has been warm, it is not necessarily a big thumbs up either. One cannot help sense that despite EU leaders calling the summit as the final chance to save the eurozone, the can has simply been kicked further down the road.

Speculated China investment gives stocks a boost
Speculation that China is seeking to use its huge reserves to invest some $300 billion into Europe and the US boosted hopes that perhaps China may well come to the rescue of Europe in the end, and boost liquidity in the region. As soon as speculation of this entered into the markets, stock prices were lifted and this helped to give Indices a fillip to push higher into the close.

Banks led the FTSE’s afternoon charge higher, with Lloyds Banking Group, Barclays and Royal bank of Scotland the top gaining stocks in London trade, rallying 5%-6%. Miners closely followed the big three UK banks, with stocks such as ENRC and Kazakhmys rallying over 2% in trading after copper prices rose over 1%.

A stronger than expected rise in US consumer confidence also gave investors a chance to look outside of developments in Brussels for a change. US consumer confidence rose to a new six-month high reading of 67.7, higher than most had expected, which was for a rise to 65. The stronger than expected reading comes hot on the heels of general US economic data outperforming of late and breeds confidence that US consumers may spend well this Christmas on the US high streets despite the economic headwinds.

Read full report on EU accord