London, Greater London -- (SBWIRE) -- 09/10/2010 -- Joshua Raymond, Market Strategist of City Index, commented:

European Indices suffered their first losses in 8 trading sessions as investors started to bank profits after a report in the Wall Street Journal that claimed that major banks had underplayed the amount of government debt they held in the recent stress tests.

Three issues hurting stocks

There have been three key issues that have weeded its way into the markets today and hurt sentiment somewhat. First and foremost, the Wall street Journal report, whilst simply confirming previously held views by most that the stress tests were not strict enough, has triggered selling in the banking sector. Secondly, comments from the central banks in Japan and Australia highlighting the deteriorating state of the US economic recovery has convinced some traders to diversify some cash from risky asset classes such as stocks into safer havens such as the Yen and US Dollar. And finally, support from two independent ministers has given Julia Gillard’s Labour party a majority government and this could give her the power to force through the dreaded mining tax.

It is these three issues that have triggered investors into profit taking having seen the FTSE rally over 6% in the last weeks trading.

US traders return to clarify market sentiment

It is going to be an interesting next few days trading with the majority of US traders returning to their desks after their summer vacations and extended labour day weekend. Much of the summer moves has been exacerbated by low volumes and this has clouded market sentiment somewhat. As traders come back into the market, it gives us the best chance in a number of weeks to gauge whether last week’s US jobs data has really boosted market confidence or not.

Invensys/Tullow Oil tops FTSE

More bid talk in the press has triggered positive moves for stocks with an article in the Daily Telegraph citing potential bid interest for Invensys after recent heavy share price falls, powering its shares higher today. Tullow Oil shares have also seen strong demand from traders today on the back of reports in the Daily Mail that the oil firm could also be a potential bid target. It’s hard to remember the last day there was not a story in the press about a potential bid target and there have been some impressive ‘knee jerk’ moves in share prices as a result.

The key will be to see whether these stories have legs or not and traders could get quickly annoyed if there is too much ‘crying wolf’ going on.

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