Euro rises as investor sentiment improves

Rising Optimism about the euro zone economy.

In his article " Dollar sinks vs. euro as economic woes ease" of July 8, 2010, Blake Ellis notes that " The dollar extended declines versus the euro Thursday as investors cheered an upbeat
report on employment and became more confident in the health of the euro zone economy."

For Blake Ellis, the investors optimism about the the euro zone economy came " after the Committee of European Bank Supervisors provided details about the stress tests of European banks scheduled for later this month."

German Stocks or French Stocks

If you are interested in investing in a European stocks, you may consider German stocks outperform French peers amid debt crisis, an article written by Polya Lesova, MarketWatch.

"Germany's DAX (XETRA:DX:DAX) has dropped just over 3% year-to-date, while France's CAC 40 Gross Total Return index has dropped about 11% in the same period. "Germany is perceived by investors as the strongest country financially in Europe," said Didier Campa, equity products specialist at Aviva Investors France.

Exports account for 40% of Germany's gross domestic product and only 21% of French GDP. Most importantly, government finances are in much better shape in Germany than France. Also, German industry is more competitive than French industry and earnings growth is expected to be higher in Germany, according to Moonen.

Industrial firms drive German outperformance
German equities have the largest cyclical exposure in Europe at about 45%, while the European average is 29% and in France cyclical stocks make up 39%, according to Kuin. Other examples include stocks like Deutsche Post (FRANKFURT:DE:DPW) and Infineon Technologies (FRANKFURT:DE:IFX).

"As long as focus is on sovereign risk and austerity measures, German equities will continue to outperform French and other European equities," Moonen said."

Financial Market Fear Factor

No matter what the reason, it's truly amazing how fear can dramatically change the investing mood on the stock market. In his answer to Can the Markets Learn to Live With Fear?, Zachary Karabell from Time reminds us the following points:

"For the first time in nearly a year, financial markets have reawakened to fear.

What plunged the world into the maelstrom nearly two years ago was the freezing of credit markets; equities plunged only in response to what was happening in global bond and money markets. Greece and the troubled state of European banks raised those fears yet again, not for the general public just yet but in the small world of finance that serves as conduit for all global economic transactions. Now we can add to that the divide between financial markets and real world economies. While the U.S. remains deeply troubled and its banks wary of lending, overall economic activity is immense and expanding.

Global financial markets are having to adjust to the ever-presence of catastrophic, technology-enhanced meltdowns much as states had to adjust to the nuclear age after World War II. Distrust of the financial system has meant that some of that liquidity has been kept out of the financial system, out of stocks and out of bonds. So while panic can devastate markets, the money on the sidelines acts as a buffer, though that's small comfort if you're deeply invested in equities when the plunge occurs.

The past weeks are certainly a reminder that the global financial system remains highly concentrated and overly susceptible to fear. But they are also a useful reminder that what happens in financial markets is not synonymous with what happens in real world economies."