Markets Shrug Off European Deadlock

Equity markets shook off a sluggish start to record solid gains by the close of the day.

Morningstar.co.uk Editors 26 September, 2011 | 5:45PM
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The immediate catalyst for the gains appeared to be hopes for a resolution to the Eurozone crisis from the annual IMF meeting, though nothing definite has emerged. Nevertheless, it was the European markets that benefited most from the improved investor mood with the CAC 40 and Dax rising 1.75% and 2.87% respectively, albeit from a position of weakness.

In the UK, the FTSE 100 was up 0.45% to 5,089. It was led by the banking sector, which rebounded on the back of a positive analyst note from UBS. It said that, for the time being at least, the British and Nordic banks were seeing improved funding flows and would be 'bystanders' in all but the most extreme Eurozone-led banking crisis. Barclays led the banks higher, rising 6.85% to 156p. A number of the insurers were also beneficiaries with Legal & General and Aviva rising 6.39% to 97.45p and 6.38% to 295p respectively.

A number of the retailers posted strong gains, showing the market was not totally averse to higher risk areas. Unloved Dixons rose 4.64% to 11.49p, while Debenhams rose 2.41% to 57.3p, suggesting that investors may believe the sell-off has gone on long enough. Debenhams continues to benefit from the stronger outlook issued last week.

The miners were the day's weakest performers on continued worries about the global economic situation. Investors fretted about the impact on exporters of the weakness of the Eurozone and sent Fresnillo, Kazakhmys and Vedanta Resources hurtling downwards.

There was relatively little in the way of company-specific news. Capita dipped 1.61% to 702p, as the market went negative on its purchase of police HR specialist Cedar HR Software. Shares in Aberdeen Asset Management rose in spite of the group's announcement of larger-than-expected falls in assets under management in the wake of the market volatility.

The other big news of the day was the weakness in the price of gold. It was down a further 1.31% today, bringing its losses for the week to over 10%. Market commentators suggested that this was a clear sign of investors moving into cash, which suggests that risk aversion is still high.

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