that Eurozone leaders would successfully put together a rescue plan pushed global stocks to a seven week high yesterday.
Leaders failed to put together a plan to recapitalise banks, build a “firewall” around at-risk sovereigns and resolve the Greek crisis by Sunday’s summit, but the governments appear to be inching their way towards agreements ahead of tomorrow’s summit.
The FTSEurofirst 300 index of leading European shares was up 1.1 per cent at the close of play, reaching 988.99 points, after
rallying strongly on Friday, ahead of the first leg of the politicians meet on Sunday.
Volumes were low, however, at 72 per cent of the 90-day average, as some, including many long-only funds, wait for clarity on the deal before increasing their “underweight” or “neutral” asset equity weighting, traders said.
Christopher Potts of Cheuvreux,said equities were moving from a tactical to a strategic buy, implying potential for a gain of 10 per cent to 15 per cent for major indexes over the next three months.
Meanwhile, Bank of France governor Christian Noyer said yesterday that the banks would need only €10bn to raise their core capital ratio to the nine per cent by the end of 2012 agreed by EU finance ministers at the weekend. Noyer said this would not require extra state funds.
Yet data coming from the Eurozone indicated a recession may be on the way. October’s composite purchasing managers’ index (PMI) came in at 47.2 – a sharp fall from September’s 49.1. The index is now firmly below the “no change” level of 50.
Analysts believe this now puts the Eurozone on track for a one per cent fall in GDP in the fourth quarter.
French service sector output dropped sharply, its PMI falling from 51.5 to 46. Germany’s manufacturing index declined from 50.3 to 48.9.
The sub-50 level represents the first contraction in German manufacturing since July 2009.
“A second successive and markedly sharper overall contraction in manufacturing and services activity in October heightens fears that the Eurozone is in grave danger of sliding back into recession,” said IHS Global Insight’s Howard Archer.
“The surveys pile pressure on the European Central Bank to cut interest rates at its 3 November policy meeting.”