EU stocks gain as traders digest speculated EU rescue plan

European stock indices gained on Monday as banking shares led a recovery in stock markets from last week’s lows as traders digested the speculated EU rescue plan leaked over the weekend.

Naturally there are some investors who are adding shares to their portfolios on speculation that the rescue plan leaked over the weekend to effectively top up the EFSF to €2trillion may trigger a bounce back for Indices such as the FTSE 100, DAX and CAC.

Indeed we have seen a bounce in EU indices this morning, with the FTSE 100 recovering from earlier losses of more than 1% to trade higher by 0.5%, and the DAX and CAC both rallying 2%.

It may however be a bit optimistic at this stage for investors to buy into stocks believing that we could see a similar stock market rally to that which followed the last massive rescue plan that was announced at the 2009 G20 meeting in London. Then the FTSE 100 rallied some 60% over the next two years, though this time around, we could be looking not only at a leveraged top up of the EFSF but a recapitalising of the major banks and a large haircut of Greek debt, which might make the immediate consequences and the processes that would allow for such an action much more clouded. As such, investors have not steamrolled fully back into equities this morning, though undoubtedly the early positive moves helps to breed a bit of confidence.

Nevertheless, those investors that were looking for excuses to buy back into equities have seemed to have got one this morning. The 4930 support level on the FTSE 100 held firm on Friday and the pencilled in mass rescue plan for Europe is giving investors a fillip to bargain hunt.

The banks have been the energy behind today’s gains so far in Europe, with bank shares such as Barclays, RBS, Societe Generale, BNP Paribas and Deutsche Bank all rallying around 6%.

Miners however continued to weigh on stock markets, with the prices of commodities remaining under pressure from the strong dollar. Copper prices fell another 3% this morning, adding to existing heavy losses last week, whilst crude prices fell another 0.6%. The share prices of the key miners in Europe continue to take their lead from the commodities markets and this has locked in a negative start for Fresnillo, Kazakhmys and Randgold Resources, whose share prices have fallen 1%-3%.

Later in the session we have US New Home Sales data for August, with sales expected to fall marginally from July’s reading of 0.298m units to 0.295m units. Data comes out at 3pm GMT and whilst this could influence trading in the afternoon, traders will continue to take their lead by interpreting the fine print and likely implementation plan to any mass rescue plan that is set to emerge.