European Market Report 11 Νοεμβριου 2011

European stocks finished another topsy turvy week with significant gains on Friday, bolstered by hopes that technocrats in Greece and Italy can help prevent a wider sovereign debt crisis.

Banking and insurance stocks rebounded from steep losses earlier in the week.

Italian Senate passed austerity measures this morning, clearing the way for Prime Minister Silvio Berlusconi's departure.

Berlusconi is set to be replaced by former European Commissioner Mario Monti and his group of technocrats. Greece swears in new Prime Minister Lucas Papademos today.

Spreads have narrowed between German and Italian debt amid speculation that the European Central Bank is buying Italian bonds.

With every component in the green, the Euro Stoxx 50 index unofficially rose 2.97 percent, for a weekly gain of 1.33 percent.

The Stoxx Europe 50 index, which includes some major U.K. companies, rallied 1.86 percent.

The German DAX rose 3.22 percent and the French CAC 40 gained 2.76 percent. The UK's FTSE 100 advanced 1.78 percent and Switzerland's SMI picked up 1.50 percent.

Allianz added 5.6 percent after the company backed its full-year view, despite a plunge in third-quarter profit.

HeidelebergCement rose 2 percent. Morgan Stanley re-initiated the stock with "Overweight" and a price target of 47 euros, while Goldman Sachs raised its price target on the stock.

K+S eased 0.35 percent. Several analysts cut their price targets on the stock.

Wacker Neuson added 4 percent. The maker of light construction equipment and compact construction machines reported a surge in profit for the third quarter, and lifted its full year outlook.

SMA Solar rose 9.6 percent after reporting a better-than-expected third-quarter profit.

Morgan Stanley cut Wacker Chemie to "Equal weight" from "Overweight." The stock picked up 2.2 percent.

Lanxess fell 2.5 percent. Citigroup cut its price target on the stock.

EADS rose 6.1 percent in Paris. Morgan Stanely raised its price target on the stock.

Rolls-Royce gained 3.9 percent. The company said its trading has progressed in line with expectations and it continues to expect good growth in underlying profit for fiscal year 2011 and a modest cash inflow, excluding the impact of acquisitions

International Consolidated Airlines was higher. The combined entity of British Airways and Spanish carrier Iberia Airlines issued its operating profit target for fiscal 2015. The company also projects cost efficiency gains from the introduction of new aircraft.

Schroders, which reported a rise in pre-tax profit on Thursday, gathered 7 percent.

The Swiss stock market has endured a largely negative week of trading this week, but finished strongly to the upside on Friday. The market opened with modest gains and managed to extend them throughout the trading session.

Early trading benefitted from the news that yields on Italian government bonds were falling. The new Greek Premier Papademos also presented his cabinet in Athens. Trading in the afternoon was bolstered by the surprisingly good U.S. consumer confidence report.

The Swiss Market Index climbed by 1.50% Friday. The Swiss Leader Index gained 1.72% and the Swiss Performance Index finished higher by 1.53%.

Cyclicals performed admirably during Friday's session. Lonza ended the day higher by 4.0% and Kuehne + Nagel climbed by 3.7%. Adecco rose by 3.3% and ABB finished higher by 2.7%.

Financial stocks were also in the green Friday. Credit Suisse gained 3.1% and UBS closed higher by 2.9%. Julius Baer also ended the session with a 1.1% climb. Among the insurance companies, Baloise gained 2.1% and ZFS finished up by 1.9%. Swiss Re rose by 2.9% and Swiss Life climbed by 2.2%.

The majority of European stock markets posted gains on Friday as market attention focused on the European Central Bank’s next long term refinancing operation (LTRO) due on Tuesday.

The LTRO is a way of giving banks access to unlimited loans at very low interest rates.

It has two effects, firstly it allows banks to make big profits lending the money out at significantly higher interest rates than they pay to get the funding. This will strengthen their weakened balance sheets.

The second effect is to help the troubled sovereigns like Spain and Italy, because their currently very high yielding bonds will offer the biggest profits.

The last LTRO in December saw the ECB lend out €489bn, so many are wondering what the demand will be this time around. The Financial Times has a rather tongue in cheek survey which suggests it could be around €630bn.

Telecom Italia has cut its dividend by 25%, in an effort to reduce debts; the move saw the shares rise 6.8%.

German IT firm SAP has announced an 83% increase in its pay-out, its stock rose just 1.15% on the news.

French construction group Eiffage has forecast significantly stronger earnings for this year, pushing the stock up an impressive 16%.

Oil giants Essar Energy, BG and BP were making gains as crude prices continued to rise. Brent crude futures were gaining 0.22% at the end of the session at the $123.89 level on the InterContinental Europe exchange.

BP was higher despite apparently experiencing unplanned flaring and a breakdown at its Carson refinery in California.