Choppy session sees FTSE rally 0 2 despite weak US data

A choppy trading session saw the FTSE 100 rally 0.2% going into the close, thanks in part to a better than expected Spanish long term bond auction in the morning session and investor vigour to buy into stocks after the afternoon saw sharp US economic data induced falls. Despite the FTSE’s strength, broader European indices were largely mixed, with the DAX losing 0.4% whilst French and Spanish stocks saw heavy falls.

There has been lots of news and data to focus on today both from Europe and the US, and considering much of the news and data have been mixed, shares have struggled to maintain consistent pricing throughout much of the day, making stock indices trade very choppy as a result.

The choppy trading was typified by afternoon market rumours that France’s credit rating could be downgraded but whilst those rumours were put to bed by French sources, the fact that these rumours continue to infiltrate near term investor opinions reminds that traders remain on edge.

The Spanish bond auction for debt maturing in 2014 and 2022 progressed somewhat smoothly this morning, helping to support share prices of financial stocks as a result. Financials, in London trading on the most partm were also well supported thanks to better than expected quarterly earnings from US bank peers Bank of America and Morgan Stanley.

Spain sold €2.5bn worth of bonds which saw stronger demand than similar auctions last time around but also higher yields. The bond maturing in 2014 saw gross yields of 3.463% compared to 3.495% last time but the longer term 10-year bond – which is a bigger test of market confidence – saw yields rise from 5.403% to 5.743%. The rise in yields was to be expected and could have been worse but the coverage of both bonds was strong and this helped to keep stocks supported in London trade.

There remains one uncomfortable issue surrounding the market reaction to Spanish bond auctions this week however. The market reaction to both short term and longer term auctions was warm, not because they were great auctions themselves but more so because they could have been much worse. This raises the prospects that when investors switch their focus back from weak expectations to fundamentals, this could escalate uncertainty surrounding the eurozone crisis further.

Benchmark 10-year Spanish bond yields saw a sharp turnaround in afternoon trading, with yields rising further after falling in earlier trade and now threatens a revisit of the 6% level.

It was weaker US economic data however that posed a significant threat towards the day’s stock gains, triggering sharp initial falls in stock prices in late afternoon trading. The Philadelphia Fed business survey fell more than expected to 8.5 from 12.5 when a small fall to 12 was expected by most. Existing Homes Sales also came in much weaker than expected, falling 2.6% against a small growth of 0.4% that was predicted by most. Weekly jobless claims also disappointed, rising 6,000 to 386,000 against expectations of a fall of 10,000 claims on the week.

The weaker than expected US data, which is alarmingly becoming a trend of late, was not enough to stop investors buying in the subsequent data induced falls for UK and US stocks, keeping Index gains on track for the FTSE 100 going into the close.

That said, clients continue to prefer short term contracts when buying into the market and this raises the potential for quick turns in the market, keeping gains fragile in the medium term.