Broad-based gains across financial sector, save HSBC; oil remains weak
European stocks were trading solidly higher on Wednesday afternoon, drawing support from banks like Credit Suisse and Deutsche Bank along with insurers.
The pan-European Dow Jones Stoxx 600 index (ST:SXXP: news , chart , profile ) rose 0.8% to 167.47, slightly off earlier highs, after posting the best one-day percentage rise in four months on Tuesday.
Some national indexes sported even stronger advances. The German DAX 30 index (DX:1876534: news , chart , profile ) rose 2.3% to 3,972.92 and the French CAC-40 index (FR:1804546: news , chart , profile ) added 2.3% to 2,725.85.
Markets in Europe were pushing ahead to carry on with Tuesday's gains, which stemmed from assurances over the financial front from the U.S., notably Citigroup. Wall Street got off to a positive start Wednesday, with the Dow Jones Industrial Average reclaiming the 7,000 mark in early trading.
Despite the cheer over some financials, caution remains the byword for many analysts with regards the Europe banking sector. Derek De Vries, an analyst at Merrill Lynch, is among those who are treading carefully.
"In our view, the key thing to watch for is a deceleration in the rate of increase in non-performing loans. Unfortunately, we aren't there yet, NPLs grew at 25% in the fourth quarter up from 17% in the third quarter," he said.
Less enthusiastic was the U.K.'s FTSE 100 index (UK:UKX: news , chart , profile ) , which edged up 0.6% to 3,738.97.
HSBC Holdings which has been volatile ahead of its 12.5 billion pound rights issue, was among the decliners, dropping 4.4% and limiting gains for the FTSE 100. Lloyds Banking Group (UK:LLOY: news , chart , profile ) was also giving up gains from the previous session, down 6.3%.turned around earlier losses, last up over 3% even as the bank said earnings will be at risk for some time. The bank said its 2008 net loss was 1.19 billion Swiss francs ($1.02 billion) wider than previously reported at 20.89 billion francs, partly because of the inclusion of its $780 million settlement with U.S. authorities. See UBS story.
Deutsche Bank was up 9% , BNP Paribas was up 7.4%, and Credit Suisse Group gained over 8%.
Insurers were also on the rise. France's AXA was up over 10%, and U.K. insurers also advanced, as Legal & General rose 10%, Prudential gained over 11% and Old Mutual From Italy, shares of Banco Popolare SC advanced 25%. On Tuesday, it asked the government for 1.45 billion euros as part of a state program aimed at boosting banks' capital ratios. It's the first lender to request direct aid from Rome. Those shares are down 78% on a 12-month basis. Several other Italian banks were gaining as well.
By sector, industrial conglomerates and metals and mining companies were also contributing to the positive tone.
Nokia was a standout gainer among technology, up nearly 8%. On Wednesday, it announced three new Nokia music stores and three new music devices.
There were some losers among oil-related firms. U.K. firms Cairn Energy (UK:CNE: news , chart , profile ) and Tullow Oil (UK:TLW: news , chart , profile ) were down 4.8% and 5.5%, respectively.
Cairn said it would sell up to 6.5 million new shares, or 5% of its share capital, to maintain operational and financial flexibility across all its operations.
Analysts at Citigroup said in a research note on Wednesday that it's downgrading its oil price assumptions, looking for $48/barrel in 2009 and $55/barrel in 2010. The analysts said this doesn't necessarily mean a risk for oil sector equities, but they are more cautious on the sector.
"The sector has been a strong relative performer as oil prices have fallen, reflecting appetite for strong balance sheets and robust dividends. However, we worry that against a back-beat of downgrades, concerns over payout ratios, and apparently limited relative upside if the oil price breaks out of the $40-50/barrel range in either direction...means that risk/reward has now skewed toward the downside," said the analysts.
Their top sector picks are U.K's BG (UK:BG: news , chart , profile ) and Italian-based ENI They cut Norway's StatoilHydro to sell and Austria's OMV (DE:OMV: news , chart , profile ) to hold.
French outdoor ad group JC Decaux (FR:DEC: news , chart , profile ) dropped 16% after reporting a 51% profit fall, not paying a dividend and saying it will record its first-ever drop in comparable revenue during the first quarter. They said E.On will not be a market sector performer for two reasons: a cut in 2009 dividends hasn't been ruled out and its disposal plan wasn't specific
Aer Lingus (UK:AERL: news , chart , profile ) dropped 21% after recording a 107.8 million euro annual loss and saying it's unlikely to record a profit before tax this year. See story on Lufthansa and Aer Lingus.
Rival Lufthansa (DE:LHA: news , chart , profile ) was up 3.6%, with the German airline predicting a "distinctly positive" profit that's below 2008 levels.
Its operating profit for 2008 slipped 2% to 1.35 billion euros.
