Investors pause for breath after yesterday s strong gains

European stock Indices fell broadly on Friday as investors paused for breath after Thursday’s sharp stock gains on the back of the EU Summit Deal. The FTSE 100 fell 0.3%, whilst the CAC lost 0.5% and the German DAX Index saw small gains of 0.1%.

The fact that investors have taken a pause is no surprise considering that yesterday’s session saw the FTSE 100 climb 2.9%, with the DAX and CAC also posting gains of 5%. Thursday’s charge was built on both adrenaline and sheer relief that widespread agreements were reached and so now that the adrenaline has receded somewhat, investors are starting to look at the bigger picture of what the euro deal means and so on that basis one could say that we are now more likely to see the true investor reaction to the euro deal.

There remain a number of question marks surrounding the methodology of the euro deal however, and how each part is going to be achieved. With yesterday’s strong gains clients have shown a willingness to lock in some of their gains today. That said, there has not been a widespread move to take profits, which can be an indication that investors may be fearful of ‘missing out on any more price surges’, and this is positive.

Banking shares were the stellar performers for the morning session today but saw a reversal going into the close, with the sector finishing flat on the day after yesterday’s 7% gains. The FTSE 350 banking sector has now rallied nearly 29% in the last three-and-a-half weeks, a terrific surge in value and prices are now where they were before August’s sharp falls. In that timeframe, Barclays’ shares have been the stellar performer, rallying 50%, whilst Lloyds and RBS have also seen gains of 23% and 34% respectively.

Weighing on the UK Index however was weakness in energy firms, with Royal Dutch Shell the key drag, falling near 2% on the day. The firm reported earnings that fell in line with most expectations yesterday.

In broader European trade, a decent set of earnings from car maker Renault, who reported an 11.9% rise on third quarter sales to €9.745 billion last night and said that macroeconomic uncertainties in Europe had not yet had an effect on its business, has also aided investor sentiment.

The afternoon session saw data out of the US showing that US consumer spending rose in September, growing by 0.6% and falling in line with market expectations after a 0.2% rise in August, though personal income grew smaller than expected at 0.1%. Michigan consumer sentiment data rose more than expected at 60.9 against consensus forecasts for 58.0, showing that US consumers were starting to feel more upbeat about the economy. That said, sentiment data is fragile and open to wide swings so we must take this reading with a pinch of salt.