Stocks see small bounce but bond auctions in focus

European stock markets saw a quick bounce from yesterday’s heavy selling weakness that was dictated by poor manufacturing data out of Germany and political instability in the Netherlands over budget cuts. Within the first hour of trading, the FTSE 100 had climbed 0.5%, whilst the DAX, which fell over 3% yesterday, rose 0.8%.

We have more bond auctions this morning; the results of which maintained a focus of investors in the near term. Spain auctioned €1.93bn worth of treasury bills expiring in 3 and 6 months time, close to the €2bn maximum target. Both bills saw bond yields rise, as expected, with the 3 month average yield rising from 0.381% to 0.634%, whilst the 6 month yield rose to 1.580% from 0.836%.

Whilst rising yields continue to pose a problem, the amount raised is not huge. It is unlikely this auction result dramatically affects debt sentiment within the eurozone.

Of greater interest was the Netherlands 2yr and 25yr bond auction which looked to raise as much as €2.5bn and could be somewhat ill timed as it comes hot on the heels of the Dutch PM handing in the resignation of his cabinet yesterday.

There had been fears that the Dutch coalition’s failure to agree tough austerity measures threatened the country’s Triple A credit rating, but late last night Moody’s admitted the move put the country on a negative watch but their rating remained intact, for now.

The results of the auction were also relatively well received, with the Netherlands raising just under €2bn with average yields on the 2yr bond hitting 0.523% and 25yr bond hitting 2.782%.

This evening the Federal Reserve kicks off the start of a two day FOMC meeting, which closes tomorrow night and the market is eager to hear more rhetoric that confirms more QE remains firmly on the table, after somewhat mixed messaging over the past two months.

From a sector perspective, it’s the banks and insurers that have helped to lead the bounce back in European trading this morning; both FTSE 350 banking and insurance sectors rose between 0.8% and 1.3% in trading, giving a heavyweight lift to the FTSE 100. The miners failed to see a similar return of funds as their bank peers traded largely flat on the day.

Apple reports their respective earnings after the US closing bell tonight. For our outlook, please click here.