European Indices continue high as investors give EU debt plan the thumbs up for now

European indices continued to climb up on Friday, with the FTSE 100 and CAC 40 rallying near 1%, whilst the DAX rallied 0.5% and peripheral indices such as the Spanish IBEX, Portuguese PSI and Italian MIB also saw strong gains between 0.8% and 2% on the day.

Investors give EU plans a thumbs up but not a high-five
There were three issues to deal with in yesterday’s summit that investors were keeping an eye on: the details of the second Greek bailout, steps taken to prevent debt contagion and the amount of expected liabilities for private lenders, ie banks. On all three of the fronts the market is giving the plans the thumbs up but in the long term I think we remain some way off from a high-five.

The plans themselves certainly reinforce the solidarity of the eurozone to combat both Greek debt and contagion fears. The seeming support from private lenders, with the Institute of International Finance stating their belief of a 90% uptake in the new bond exchange options, along with the removal of any plans for a banking tax has helped to smooth over potential new battle grounds between private lenders and government authorities. It is in the banking sector where European indices have seen the most bullish energy over the last 48 hours and so this is where one can locate the greatest vote of confidence in the new bailout plans.

The reactions of ratings agencies towards the EU plan and Greek bailout is however likely to keep traders on their toes next week. The options given to private holders to rollover Greek debt is likely for mean that ratings agencies will deem Greece is in the position of a selective default.

FTSE 100 eyeing 6000 again
It is the bullish near-term momentum seen in UK banks that has helped the FTSE 100 to drive back into the year’s 250-point trading range, with the UK index now retargeting the 6000 level. The FTSE 350 banking sector has rallied over 8% in the last three days alone, which is a big move with Barclays, RBS and Lloyds all leading the charge higher. A move back above the psychologically important 6000 level could see resistance tested between the 6040-6050 levels before a move back to the year’s highs of 6105 could be revisited.

easyJet shares jump 17% after earnings boost
Budget airliner easyJet’s shares rallied over 17% on Friday, with shareholders boosted by a much better earnings picture for the third quarter and an upgrade in guidance. The orange airliner recorded a 23% jump in revenue to £935 million, and upped its pretax profit guidance for the year to a mid range of £215 million from an original consensus estimate of £174 million. easyJet’s share price hit a new five-month high of 373p before investors took profits. There is strong resistance at the 370p mark and so share prices need to consolidate above this level if upside momentum is to continue.