Stronger than expected data adds to risk appetite FOMC eyed

European stocks rallied on Tuesday, after a quiet session yesterday, as positive economic data in Europe helped to add to investor appetite for risk. The market also eyed tonight’s FOMC decision, which falls after the close of trading.

By late afternoon, the FTSE 100 rallied near 1% to trade close to the 5950 level and threaten a move back towards the 6000 level – a height not reached since June last year- whilst the DAX and CAC also rallied around the 1% mark.

Much of the energy behind the gains has been centred on buying in financial stocks, with the FTSE 350 banking sector rallying 2.2%, closely followed by resource stocks with mining and oil stocks gaining ground too.

The gains made in these three stock areas typifies the appetite for risk shown by investors in Europe today on the back of stronger than expected data out of the UK and Germany, and optimism ahead of the FOMC tonight.

UK Trade Deficit widens less than expected
The UK trade deficit widened less than expected in January, giving more positive news to Chancellor George Osbourne ahead of this month’s budget. The trade deficit widened from a revised figure of £7.184billion to £7.532billion, when it had been expected to widen to £7.88billion; helped in part by a record amount of exports to non-EU countries driven by car sales to the US, Russia and China.

The overall picture was better than expected, though naturally with the eurozone economy likely to head into a recession, there remains big question marks over the trade balance considering the UK’s export reliance upon Europe.

German ZEW beats forecasts
Stock gains continued into the market session with investor confidence raised after German sentiment figures surpassed market expectations. German ZEW index came in at 22.3, far surpassing expectations of 10.0, though there was a caveat in the figures in the shape of current conditions falling short of expectations to 37.6.

US Retail Sales beat forecasts
Better than expected US retail sales data also helped to give stocks support in afternoon trading, with retail sales rising 1.1% last month compared to forecasts of 1%, whilst January’s rise was upwardly revised to 0.6% from 0.4%. Consumer spending plays a crucial role in US growth and so as such, the retaiol sales figures, along with better than expected US jobs data, is helping to boost US growth optimism ahead of tonight’s FOMC, though naturally this leaves lingering concerns that QE3 may be kept in Bernanke’s pocket as a result.

Antofagasta dividend disappoints 
Shares in Antofagasta lagged a broader positive session for UK listed miners after the firm announced a cut to its special dividend to just 24 cents, when the market had been hoping for around 35 cents on the back of a 32% rise in profits.

The news is ill-timed considering the shock departure of the firms CEO who left the firm last week over a speculated argument regarding strategy. We have seen a negative reaction to the dividend and the sudden departure of the firms CEO also creating a degree of uncertainty over the outlook for the company, despite the CFO maintaining that the company was now on a second phase of growth that made it necessary to bring about new leadership.