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No More Stock Bloodbath? Capital Wipeout Grinds to Halt in European Trading

© REUTERS / Staff/RemoteTraders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, January 13, 2016
Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, January 13, 2016 - Sputnik International
The European stock rout braked to a standstill on Monday, possibly ending the multi-week slaughter and anxiety in financial markets, if not globally, but at least on a regional scale, with real economy fundamentals in focus determining further market dynamics.

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Kristian Rouz – The international stock rout plaguing most markets across the financial world might have signaled it has eventually worn out during Monday’s trading in Europe, where stocks were mixed by the day’s close. Europe had slid into an official stock recession, with market indices having erased over 20% their value compared to last year’s highs. To make things worse, the banking and energy sectors are still bleeding under pressure. However, robust manufacturing performance in Germany and less monopolization might have turned out to be a stumbling block for the stock wipeout.

The ongoing oil price slaughter, spurred by Iran’s sanctions being lifted officially and slugging macroeconomic fundamentals across the globe, are still driving a major retreat in international stock trading, with Monday’s sessions throughout the Asia-Pacific sector closing predominantly in the red. While US stocks are still under pressure, and the markets are closed for a national holiday, Europe might have shrugged off the gloom, as its stocks fluctuated between gains and losses on Monday, suggesting at least some momentary stabilization.

Major stock markets in London, Frankfurt and Paris all closed with insignificant gains, driven by the advances in the telecom and luxury goods sectors. Consumer demand is robust across the region amidst the upbeat labor market dynamics and the lingering lack of inflation, which is generally favorable to spending. In other words, the European domestic strength factors have allowed the region to fend off international risks coming from Asia. Potentially, this might end the wave of anxiety across the financial world.

Still, the broader measure of European shares, the Stoxx Europe 600, is just above its one-year lowest, having erased its 2015 gains almost completely, and having slid into recession. While the broader Stoc 600 still inched lower, its energy sector performed surprisingly well, going into the green as harsh winter conditions supported a brighter fuel demand outlook. Meanwhile, banks were battered as market volatility hurt financial assets across the region.

“Volatility indexes are on levels which are far away from calm waters,” Guillermo Hernandez Sampere of the German wealth management firm MPPM EK said. “We are still in risk-off mode, so don’t expect a ‘V-shaped’ correction to the upside. As a value investor, we see this as a buying opportunity for the mid or long-term.”

Last week, US investors warned they do not see buying opportunities in North America in the near-term, but the European bounce might suggest otherwise, at least, on the regional level.

Meanwhile, the Bank of America Merrill Lynch volatility measure was indeed at its highest since October 1 during Monday’s trading. Only eight out of 19 equity sectors posted gains in Europe, yet enough to stop the broader measure’s slide.
Markets might indeed have calmed, having anticipated macroeconomic fundamentals for the past quarter and fresh 2016 projections. While both are expected to be subject to review, the scale of the potential downgrade is in focus.

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