Bourse decides to party

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Volatility has played a stronger role in the Spanish stock market of late than in the rest of the European bourses, and yesterday's session saw a surprising display of optimism.

27 February 2008

MADRID - Volatility has played a stronger role in the Spanish stock market of late than in the rest of the European bourses, and yesterday's session saw a surprising display of optimism.

The Spanish Ibex 35 index managed a gain of 2.13 percent, which allowed it to close at 13,436.60 points. That was very close to its intraday high but sufficiently far away from resistance at 13,500 points, which would have put pressure on the market that it is possibly not yet ready for.

Observers and analysts were in disagreement about the reasons behind this display of confidence, despite the fact that in the previous session there was a consensus about why the Spanish market was underperforming.

The economic indicators released in Europe yesterday gave room for some confidence, while those out of the United States confirmed that the problems identified by the Federal Reserve are getting worse.

Business confidence rose in Germany in February, which would appear to distance  fears of a crisis. In the United States, industrial prices rose 1 percent in January, while consumer confidence in February fell to its lowest level in five years.

The response of Wall Street to the figures was in part surprising as investors decided to celebrate them on the reasoning that the drop in consumer confidence foreshadows a further cut in interest rates, particularly since underlying inflation remained relatively benign at only 0.4 percent.

The rises in the European bourses as a whole point to a growing conviction on the part of investors that the economy will suffer no more than from a slight cold, which at most could lead to ECB cutting interest rates within a couple of months.

[Copyright El Pais / RAFAEL VIDAL 2008]

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