EU nations have announced that they are putting efforts into recapitalizing banks, causing European shares to rebound this Wednesday.
Earlier this morning, London’s FTSE 100 index of top shares increased 1.68% to 5,027.72 points. In Frankfurt, the DAX gained 1.57%, and in Paris the CAC 40 rose 2.16%. Milan, despite a three-notch fall by Moody’s, recorded an increase of 1.27%.
“An impressive bounce higher this morning on talk that EU finance ministers are reported to be talking about bank recapitalizations is a welcome development,” said CMC Markets analyst Michael Hewson. “But unless it is followed up by some significant action it is likely to soon give way to downside pressure once more.
“The rally higher does suggest that the buying interest is there and it is policymakers disjointed and uncoordinated policy responses that is keeping investors on the sidelines.”
On Tuesday, European markets fell dramatically as a result of concerns that the euro crisis could expand to more banks as Dexia, the Franco-Belgian lender, expresses worry over its liquidity.
“The hopes that finance ministers are finally examining ways to recapitalize euro area banks is certainly the main driver this morning,” said Chris Scicluna, Daiwa economist. “Such action is critical in light of events at Dexia, in order to avoid contagion of funding and solvency concerns to other European banks, the risks of which appear yet greater till in light of the Italian triple notch downgrade by Moody’s.
“So markets this morning are buoyed by Olli Rehn’s suggestion that there is now a ‘sense of urgency’ among ministers to tackle the issue.”