Third day of gains for European Indices 8211 Kingfisher leads

European Indices enjoyed a third day of straight gains, with the FTSE 100, DAX and CAC all rallying 1.3%-1.7% at the start of trading, tracking a strong close in US markets last night, as investors took Merkel and Sarkozy’s pledge to keep Greece in the Euro Zone as a strong signal that Europe will do everything to prevent a Greek default.

The FTSE 100 has now rallied 5% from the lows of Monday morning, and whilst before August that sort of rally would indicate a strong bull charge, in today’s markets where Indices are seeing daily price swings of over 2.5%, the bounce in prices is not necessarily indicating a bullish change of confidence.

What we have seen primarily is investors taking some muted confidence from Angel Merkel and Nicholas Sarkozy’s pledge to keep Greece in the euro zone as a sign that Greece may be saved from a default.

Certainly investors have used this as an excuse to buy into some of the more badly beaten down sectors, such as the banks and miners, which have lead the charge across Europe in the last few days. That said, with Italian 10yr bond yields still above 5.6% and French banks such as Societe Generale and BNP Paribas not seeing much of a correlated bounce, this would indicate that any restoration of confidence remains quite far off.

Key resistance on the FTSE at 5450 remains a barrier that must be overcome in the near term if this weeks bounce is to have longer legs and this remains a big ‘if’. A break above 5450 could help investors to retarget the 5600 level but at present one can’t help feel that the recent rally remains susceptible to profit taking from investors looking to make a quick buck.

Kingfisher shares top FTSE
Kingfisher, the owner of B&Q, shares rose near 6% to top the FTSE 100 gainers list after reporting stronger than expected first half year earnings. The retailer posted a profit of £439 million, with most expectations marginally over the £400m mark, whilst also announcing a boost in profit margins and a ramp up of its expansion plans for new stores, creating 1,200 jobs.

The report oozed confidence, particularly considering the £130m investment to expand its operations as a time when UK high streets face serious headwinds from public spending cuts and an expected increase in joblessness.

UBS loses $2bn to rogue trader
UBS shares lost 6% on Thursday after the Swiss bank reported that a rogue trader lost the firm around $2bn.

Whilst the incredible volatility seen recently in the markets would have likely seen some traders lose and win big, the news that a rogue trader was allowed to stack up losses of $2bn will inevitably send nervous shockwaves through to those investors who have only just returned to the bank after a severe loss of confidence. The Swiss firm has fought hard in the last few years to restore its credibility from having to be bailed out by the Swiss authorities, suffering a large fine for tax evasion and after it agreed to disclose the accounts of thousands of its clients to US tax authorities.

Whilst it is very surprising to see rogue traders can still slip through the net of internal risk management processes, this is going to be viewed as a big setback in the Swiss banking giants fight to restore its credibility.