At 1151 GMT, the FTSEurofirst 300 index of top European shares was up 2.8% at 940.64 points, on track for its eighth day of gains in the last 10. The DJ Stoxx European basic resources index jumped 12.7%, tracking metal prices. Rio Tinto, Kazakhmys, Xstrata and Antofagasta recorded gains of 9-16%. Steelmaker ArcelorMittal jumped 16.6%, and a 5.8% rise in oil prices lifted BP, Total and Shell by 2.9-5.3%.
China approved a $586 billion government spending package and announced a shift to “moderately easy” monetary policy despite having already made three interest rate cuts since mid-September. “Governments clearly understand this is very serious and are working on two fronts: Keynesian, with fiscal stimulus, and Friedman with cutting interest rates and putting liquidity into the system,” said Philippe Gijsels, strategist at Fortis Bank, in Brussels.
Gijsels pointed out that US stocks rallied on Friday after the European close, despite weak US jobs data, which indicated that bad news was now factored into share prices. “This market is very much oversold, we have been very cautious on the markets since January .. the chances are very good for a bear market rally from now,” he said.
European shares have risen 15% over the past two weeks but are still down 38% this year, hammered by a credit crisis that piled up losses at top banks and slowed the economy. Around Europe, Britain’s FTSE was up 3%, Germany’s DAX up 3.4% and France’s CAC was 3.5% higher.
“Commodity stocks are rising, on the other hand you see that financial stocks are having further problems, so while there is a little hope for the economic scenario, we still come back to the same old problems,” said Hans-Juergen Delp, investment strategist at Commerzbank in Frankfurt. Santander fell 5.6% to €7.87 after it unveiled a surprise €7.2 billion rights issue at €4.5 a share.
Europe’s biggest insurer Allianz fell 1.6% after reporting worse-than-expected Q3 operating figures, and abandoning its operating earnings targets for this year and next. “Share prices are going to remain extremely volatile and we will continue in a bottoming-out phase -- we are a long way from reaching a correction upwards,” said Commerzbank’s Delp.
Markets should brace for poor economic data from the euro zone this week, Goldman Sachs economist Erik Nielsen warned in a note. “In the euro zone, this week will be dominated by GDP and industrial production data,” he said. “Fasten your seat belts - its going to be an unpleasant ride. Data released on Monday showed that Italian industrial output plunged 2.1% in September, the steepest fall in almost a decade, pointing to a recession which analysts said may prove deep and long lasting. (Reuters)