Best Bank Rally Since 2012 Lifts Europe Stocks From Two-Year Low
Comment of the Day

February 12 2016

Commentary by David Fuller

Best Bank Rally Since 2012 Lifts Europe Stocks From Two-Year Low

Here is the opening from this Bloomberg report:

Rebounds in lenders, miners and energy producers pushed European stocks to their biggest gains in three weeks.

Commerzbank AG jumped 18 percent, the most since 2009, after saying it returned to profit. That eased concerns that the region’s lenders will fail to find a way to remain profitable in a low-rate environment, which sent them to their biggest plunge since August 2011 on Thursday. Deutsche Bank AG climbed 12 percent after saying it will buy back about $5.4 billion of bonds. Energy producers posted their biggest surge since 2008 and miners their biggest since 2009 as commodities rallied.

The Stoxx Europe 600 Index rose 2.9 percent, rebounding from its lowest level since 2013. Data showing that the region’s recovery kept its momentum also helped sentiment: Germany led the euro area’s growth to 0.3 percent in the fourth quarter, matching economists’ forecasts.

“Markets have been scrabbling for a story -- we’ve changed our focus on fears about China, oil, financials and central banks in such a short time,” said Ben Kumar, an investment manager at Seven Investment Management in London. His firm oversees about $13 billion. “It’s crazy that the market is priced for recession and a complete failure of the financial system. But you wouldn’t want to call it the end of the rout quite yet. Nobody wants to be the first bull now.”

David Fuller's view

Most stock markets are deeply oversold relative to their 200-day moving averages, but investors remain fearful.   

China’s reopening on Monday, following a week out of the limelight, will affect sentiment.  Currently, China is quite oversold. 

Industrial commodities are particularly oversold but a catalyst is required to trigger short covering and increased inventory buying by users.  This lead could come from crude oil, which has lost some downward momentum, and suppliers know that cutbacks from record production are necessary to decisively break the downward spiral.

Commodity prices have been losing downward momentum recently and a stronger performance would help global stock markets generally, because it would be a lifeline for resources producers.  Countries which are primarily exporters of commodities have been experiencing depression conditions, adding to the weakness of global GDP growth by more than offsetting the benefits of lower prices for commodity importers and consumers.  

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