European stocks surge, euro gains on expected Fed moves

European stocks shot higher yesterday on healthy US corporate earnings and prospects for more Federal Reserve stimulus measures, which helped push the euro over $1.40.

Share prices surged across Europe after gains in Asia, with the Frankfurt DAX closing at a two-year high and the Paris CAC 40 recording its best performance since early May.

On the currency market the euro firmed against the greenback, at one point rising above the $1.40 level and helping send gold to a record high $1,374.35 an ounce.

The euro in late-day trade was at $1.3959 against 1.3918 late Tuesday in New York. The dollar was meanwhile trading at 81.81 yen after 81.71 on Tuesday.

The gains on the stock, currency and gold markets were all powered primarily by the increasing likelihood the Federal Reserve will inject more money into the US economy – notably by buying up bonds and other assets – to galvanise a flaccid recovery.

The introduction of such funds would tend to dilute the dollar, devaluing it further - and against the euro in particular.

Behind the latest spurt on financial markets was the publication on Tuesday of minutes from the meeting last month of Fed policymakers, which signalled that more Fed intervention was in the offing.

“It is now practically certain that the US central bank (the Federal Reserve) will make an important announcement at the meeting November 3 of its monetary policy committee,” said Aurel economist Christian Parisot.

At Credit Agricole CIB Mitul Kotecha said the Fed minutes “leave the dollar vulnerable to further declines,” adding that “the most likely path will be the commencement of asset purchases in November.”

In London the FTSE 100 index rose 1.51 per cent to close at 5,747.35 points while in Paris the CAC 40 added 2.12 per cent to reach 3,828.34. The Frankfurt the DAX gained 2.06 per cent to close at 6,434.52 points, a two-year high.

Elsewhere in Europe there were gains of 1.80 per cent in Milan, 2.05 per cent in Madrid, 1.25 per cent on the Swiss Market Index and 1.98 per cent in Amsterdam.

Market sentiment in both Europe and on Wall Street was further boosted yesterday by strong earnings reports from US chip maker Intel and bank JPMorgan Chase.

The blue-chip Dow Jones Industrial Average was up 0.88 per cent at 11,117.28 at mid-day, when the tech heavy Nasdaq had gained 0.98 per cent to reach 2,441.53.

Asian stocks mostly edged higher yesterday, with Japan getting an extra lift from unexpectedly strong data on private-sector machinery orders.

Tokyo rose 0.16 per cent, Hong Kong jumped 1.45 per cent and Shanghai gained 0.70 per cent while Sydney was flat.

European bond prices meanwhile fell as investor appetite for riskier assets, such as stocks, strengthened.

The yield on the benchmark 10-year German Bund widened to 2.282 per cent from 2.234 per cent on Tuesday. The yield on the French 10-year OAT went to 2.688 per cent from 2.648 per cent.

Bond prices and yields move in opposite directions.