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European markets post gains despite U.S retail

Friday 15th January 2010

By Joshua Raymond, market strategist at City Index

European markets recovered lost ground on Thursday after two days of losses after investors speculated that Intel's earnings may supersede expectations.

The day has been largely about speculative bargain hunting on hopes that Intel's earnings may repair some of the damage done by Alcoa's earnings and Chevron's profit warning earlier in the week. The fear is that if Intel's earnings disappoint it may not take long for investors to quickly look back to the decline in US retail sales and today's gains could come under threat.

Investors have largely turned a blind eye to macro economic data today, which showed a surprise decline in US retail sales.

However, the first decline in US Retail Sales for three months is a cause for concern together with China's move this week to cool excessive growth and the high degree of caution displayed by major retailers for their 2010 outlook has put a question mark on the pace of the economic recovery.

The main bargain hunting we have seen has taken place within the mining sector, which leads today's gainers in London. The miners were sold heavily on Tuesday after China's move to raise its bank reserve requirements and as such this has been the first place speculators looked to pick up some bargains.

The retailers are the weakest performers in Europe today with home retail particularly suffering despite announcing that full year profits is set to be better than expected, after Argos posted weaker sales. Investors have reacted fairly negatively to this and the decline in US retail sales has only exacerbated this trend today.

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