Europe’s stock markets finished the week with a major rally – up 3% – and financial companies were the strongest performers.
The region’s investors were betting that the revamped US bank bailout package would be voted into law, which it was two hours after the European bourses closed.
It had been a rollercoaster week for the markets, starting with the collapse of US bank Washington Mutual, followed by the US Congress rejecting the original version of the financial rescue plan just after President Bush had said he was confident it would pass.
Also during the week, European governments organised the rescue of several over stretched financial institutions – including Fortis, Dexia, Bradford & Bingley and Hypo Real Estate.
Market Strategist Tom Hougaard is reasonably optimistic about where the markets go from here: “We have seen some extreme moves over the last year and we are long, long overdue a significant bounce. I’m not suggesting we are going to get out of the bear market, but I do think that a bounce of three to six months is in the making. When you can drop 13% in one day and then rise 7% the next day, you have got a low in the making, but it’s going to be volatile, so you’d better brace yourself for that.”
Recently hammered banks surged, with BNP Paribas up 9.4%, Barclays 8.9% and Credit Suisse adding 8.3%.
The financials were helped by news that Wells Fargo will buy embattled bank Wachovia, fuelling hopes of more consolidation among banks.