Eurozone Leaders' Pledge Injects Hope Into Market

Stocks headed higher at the start of the week as fear over weak economic recovery was exchanged for hope of a eurozone debt solution

Holly Cook 10 October, 2011 | 6:04PM
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Stocks began the week on an upbeat note after eurozone leaders pledged to resolve the region’s banking and sovereign-debt crises.

German chancellor Angela Merkel and French president Nicolas Sarkozy reached an agreement on Sunday to guarantee bank recapitalisation and strengthen the eurozone's rescue fund, the European Financial Stability Facility. However, they did not reveal the details of their plan, suggesting that some disagreement may remain between the two leaders.

By close of play Monday, the Paris CAC 40 was 2.1% firmer, the Frankfurt DAX was 3.0% higher and the London FTSE 100 was up 1.8%. While the latter added 96 points to settle at 5,399, its mid-cap counterpart took on 183 points or 1.8%, which saw the FTSE 250 index close at 10,141.

In other eurozone news, Franco-Belgian bank Dexia (DEXB) announced a rescue plan which includes the nationalisation of its Belgian unit and a EUR 90 billion funding guarantee for the next 10 years. Morningstar banking analyst Erin Davis today placed the bank under review as she assesses the impact of these emergency measures.

Hopes of a water-tight Franco-German debt plan helped to buoy banks in London trade, with Barclays (BARC) rising 4.5%, Standard Chartered (STAN) up 4.4% and Royal Bank of Scotland (RBS) 4.2% ahead.

Financials aside, commodities stocks also received a vote of confidence as the market sought out riskier assets. Essar Energy (ESSR), Petrofac (PFC) and Johnson Matthey (JMAT) were among those energy and metals producers that enjoyed a lift, each up 4.1%-4.7%. Heavyweight oil firms BP (BP.) and Royal Dutch Shell (RDSB) also offered support, 2.9% and 2.7% higher respectively, with the latter rumoured to be restarting crude distillation at its Singapore refinery.

On the flipside, Compass Group (CPG) slipped 1.2% to the top of the FTSE 100’s brief casualty list amid concerns about the impact of economic weakness on U.K. dependents. Elsehwere, tellingly, stocks favoured for their defensive characteristics were in decline as investors shunned ‘safer’ plays in favour of taking on more risk. Imperial Tobacco (IMT), National Grid (NG.) and Shire (SHP) slipped between 0.4% and 1.1% lower apiece.

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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