US indices leads Europe higher by 2 5 French rumours swirl

European stock indices broadly climbed on Thursday as investors made tentative attempts to pick up some of the more badly beaten stocks, taking confidence from a positive opening to US markets, where the S+P and Dow Jones both rallied 2%. This in turn sparked a revival of fortunes for European Indices, whose early gains had been progressively sold into as the session continued, helping the FTSE 100 to post gains of 2.5%, with the DAX rallying 3% and CAC 40 pushing higher by 2.6%.

French rumours swirl
Equities traded particularly choppy with traders switching and chopping positions at high frequency throughout the day  remaining highly sensitive to any news, data or rumour. The rumours surrounding the stability of French banks and of Societe Generale in particular, though a rumour it remains, continues to swirl amongst traders and this is impacting the longevity of long positions, particularly in European banks.

The fact that the European market watchdog, the ESMA, said today that they were in close contact with national regulators and are monitoring the situation closely exacerbated the situation as it gave an unwanted dose of credibility to the rumours, as did a planned meeting between Nicolas Sarkozy and Angela Merkel next week. Speculation that certain banks in Asia had cut credit lines to some of the French banks also hardly helped matters but again, there was no formal confirmation of this which remains mere market speculation.

Currently there appears no confirmed basis for the rumours that Societe Generale could be in trouble due to exposures to Greece and wider sovereign debt. Indeed at a time when markets are incredibly volatile, these rumours tend to emerge with traders attempting to second guess what may lay down the road next for fear of being caught on the wrong side of a price move. However, the fact that Societe Generale’s share price has fallen nearly 50% in the last three weeks alone, badly underperforming already weak European banks, is deeply concerning and as such, today’s 6% rise in the bank’s share price is brought into greater context of a broader lack of confidence.

US gains triggers afternoon revival for EU indices
It was the sharp 2% higher opening for US stocks that was enough to lead heavyweight stock sectors upwards in the afternoon, with Indices gaining rally momentum towards the close, helped in part by a better than expected fall in US jobless claims. The FTSE 350 banking sector saw gains of nearly 4% whilst the heavyweight miners also saw a 3% advance as metal prices gained throughout the afternoon.

Today’s gains on the FTSE 100 are welcomed but certainly investors will need to see these gains form a base from where shares can rally further before elements of confidence can be restored. A break for the FTSE 100 above 5400 could be the trigger to convince investors of a longer term retracement to the upside from recent heavy falls. That said, with most recent short rallies proving particularly choppy, the willingness of investors to cash in their gains quickly from any rally is a trend that needs to change for this to happen.