European equity markets buoyed in early trading following a strong final hour in US trading

European equity markets started the day in positive mood following a strong finish to the US trading session yesterday evening. The Dow traded down to a low of 11,898 (-82 points), but rallied in the last hour of trading to close at 11,977 down just 3 points. Similarly, the S&P was down around 7 points intraday but had a strong finish to close up fractionally on the day at 1291, +0.3 points. Traders put the strong final hour down to US investors flattening positions before the ‘State of Union’ address yesterday evening.

In European markets, early morning trading was dominated by the Oil & Gas sector, with BG Group up 2.5% and Heritage Oil down 15% at 8.30am GMT.

BG Group, the UK-listed exploration and production company, traded up to a high of 1373.5p (+3.5%) in early morning trading following news of an oil discovery in the Santos Basin, offshore Brazil. Drilling has been concluded and drill stem tests will be conducted in due course.

Heritage Oil, the FTSE 250 listed oil and gas producer, traded down to a low of 367p (-15.9%) following confirmation that it has made ‘a large’ natural gas discovery in the Kurdish region of Iraq, but the find will need new export infrastructure. The viability of such a project, which could include a long pipeline through Turkey, has given investors cause for concern.

The mining sector was also a key contributor to the FTSE’s positive start to the day; Rio Tinto was up 1.5%, BHP Billiton up 1.7% and Xstrata up 1.5% with all other sector constituents posting at least +1% gains on the day.

At 8.30am GMT the FTSE was trading at 5953 up 36 points, the DAX up 41 points at 7100, with the CAC40 trading at 4045, +25 points.

Next on the agenda will be the Bank of England’s MPC meeting minutes release at 9.30am GMT. Investors will be looking for any change in sentiment from the previous meeting, which saw a three-way split with Andrew Sentence pushing for a rate rise to 0.75%, Adam Posen looking for an additional £50billion in QE and the remaining seven committee members looking to leave rates and QE unchanged. A divergence from this stance could well spook markets.

Should all remain unchanged at the Bank of England then investors will be looking at US MBA Mortgage Applications out at midday (GMT) and more importantly to the FOMC Rate Decision at 7.15pm GMT this evening. There is speculation that the Federal Reserve will look to support the US recovery even though growth has seemingly returned to the world’s largest economy. One might therefore expect a quiet session this afternoon whilst investors wait to analyse the wording of the latest Fed statement.

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