Cantor Fitzgerald

Stephen Pope Comments: European Shares Close Higher As Bank Outlook Brightens

July 7, 2010, MarketWatch

A rally in banking shares, powered by the hope that impending bank stress test results may not be as bad as feared, helped European stocks close higher on Wednesday.

The Stoxx Europe 600 index /quotes/comstock/22c!sxxp (ST:SXXP 246.06, +3.30, +1.36%) rose 1.4% to 246.06.

"With the earnings season coming up it might be that corporate profitability helps to reassure the market, but that will probably only be the case if combined with reduced concerns regarding sovereign debt and European banks," said Gary Jenkins, economist at Evolution Securities.

"We should get some of the methodology behind the bank stress tests soon," he added. See related commentary on "stress tests."

Reports on Wednesday suggested the criteria used to measure European banks' health might be more generous than originally feared. Stress tests assume a 17% hit on the value of Greek government bonds they hold, according to two reports. The Spanish haircut was 3%, according to Bloomberg.

"Being a cynic I believe 20% should the minimum haircut that should be in place for the Greek debt and 5% to 7% for Spain," said Stephen Pope, chief global equity strategist at Cantor Fitzgerald. "A typical European fudge," he added.

Notable financial-sector gainers included lenders with significant exposure to so-called peripheral European countries.