Europe Session Key Developments

• Equities Manage to Hold on to Most of Yesterday’s Gains
• Earnings Reports Continue to Drive Equity Performance

European Equity Trade Nearly Flat Amid Mixed Economic Releases, Earnings

European Markets were mixed during Wednesday’s trading session but remained mostly even as a whole. After yesterday’s near two percent increase across the board, all the major indices changed by less than 0.3 percent during an uneventful day of trading. A couple of economic releases were likely responsible for today’s equity price action, namely additional corporate earnings reports and the U.S. Advance Retail Sales report. After yesterday’s closing bell in the U.S., Intel announced that it had earned 51 cents per share, which greatly exceeded analyst expectations of 42 cents per share. Intel CEO Paul Otellini referred to 2Q of 2010 as “the best quarter in the company’s 42-year history.” However, positive sentiment following the earnings report did not last long; the U.S. Advance Retail Sales report yielded a contradictory result, showing that retail sales had slid by 0.5 percent vs. -0.3 percent expected. Mixed economic indicators led to mixed sentiment among investors, which could explain the European equity market’s overall choppy performance. It remains to be seen how the remainder of the 2Q earnings season will impact risk appetite; if the reports continue to impress, equity markets could benefit from investors’ restored desire to resume investing in riskier asset classes.

FTSE 100                      5253.52                   -17.50               -0.33%

After yesterday’s impressive two percent increase, the FTSE index retraced slightly as investor sentiment slowed. The index dropped 17.50 points, or 0.33 percent, during intraday trading Wednesday. Most sectors traded relatively flat on the day with the exception of the technology and industrial sectors. The tech stocks, which only comprise 1 percent of the FTSE index, managed to post a cumulative 0.94 percent gain. The largest index-mover on the day was none other than BP PLC, which lost 2.28 percent and accounted for nearly a third of the broader index’s decline.

CAC 40                     3,632.98                   -4.78                 -0.13%

The CAC 40 index traded mostly flat Wednesday, losing just 0.13 percent by the end of the European session. The CAC had tested the 3600 level during intraday trading but managed to close at 3632, successfully holding on to its astounding gains over the last week. As was the case with the FTSE index, the French index’s technology sector was the top performer, gaining 1.71 percent. However, its relatively small size within the sector was unable to counteract the decline posted in the larger financial sector, which lost 0.75 percent as a whole. BNP Paribas, after gaining nearly three percent yesterday, gave back 1.38 percent to close at 50.74.

DAX                         6209.76                    +18.63             +0.30%

The DAX 30, which has become the strongest major European equity index, did not disappoint Wednesday. The German index managed to finish higher by the day’s close, adding 18.63 points, or 0.30 percent, to close above the 6200 level. Only the utilities and consumer goods sectors ended lower, which was most likely a retracement from yesterday’s impressive gains in BMW, Daimler, and Volkswagen. The disappointing U.S. Retail Sales figure may also have contributed to the automobile companies’ descent today. Merck was the most impressive DAX component Wednesday, adding 2.83 percent to close at 63.90.

IBEX 35                     10278.50                   +19.00                 +0.19%

The IBEX 35 finished higher on the day, joining the DAX as the only major indices to do so. The Spanish Index closed 19.00 points higher, or 0.19 percent, largely attributable to a strong telecommunications sector (21 percent of the total index). The telecommunication company Telefonica added just 0.12 points, or 0.76 percent, but it drove the IBEX higher 16.43 points on its own. The index was held back by its largest component, the financial sector, which traded mostly flat on the day. Banco Santander, Spain’s largest bank, retraced slightly following yesterday’s gains, losing 0.15 percent on the day.

S&P/MIB                        20804.37                    -47.48                  -0.23%

The Italian Index retraced slightly following yesterday’s impressive 334 point rally to close at 20804.37 after Wednesday’s trading session. Despite being down nearly 10 percent YTD, the MIB has staged an impressive rally in the last week, gaining almost eight percent.