The euro and European stocks were sharply higher yesterday as surprisingly strong US home sales offset disappointment at a lack of fresh stimulus action from the European Central Bank.
Dealers said the markets were firmer in early trade after a solid showing in Asia amid speculation the ECB might announce radical new measures, but they slipped back when the bank largely kept policy steady. In late trade however they moved ahead strongly after better-than-expected US pending home sales in October – up 10.4 per cent – offered hope the housing market might finally be stabilising and confirmed recent signs the economy might be picking up again.
In London, the FTSE 100 index of leading shares jumped 2.22 per cent to finish at 5,767.56 points. In Paris, the CAC 40 gained 2.12 per cent to 3,747.04 points while in Frankfurt the DAX rose 1.32 per cent to 6,957.61 points.
The euro was also much firmer, rising to $1.3231 in late trade from from $1.3138 in New York late last Wednesday.
Dealers said that while the ECB had announced no new stimulus measures, it did just enough to keep the markets happy by saying it would continue to buy government bonds and offer the banks cheap emergency funding to end-March.
There had been speculation it would do much more, adopting perhaps the Quantitative Easing policy of the US Federal Reserve and Bank of England to pump new cash directly into the economy to get it moving.
But ECB head Jean-Claude Trichet stressed that the ECB would not adopt QE. QE, by providing more cash is intended to boost demand, helping an economy recover, but it can also devalue a currency as more money comes into the system.
The euro and stock markets were helped by a general easing of tensions on the eurozone money markets, especially in Spain, Greece, Portugal, Ireland and Italy, those countries seen most at risk of debt and deficit contagion.
Irish 10-year bond yields – the rate of return earned by the holder – fell very sharply to 8.297 per cent from 8.654 per cent on Wednesday, with Spain’s 10-year bond down to 5.004 per cent from 5.254 per cent. Among other European stock markets, Amsterdam rose 1.68 per cent, Brussels added 2.00 per cent, Madrid jumped 2.78 per cent, Milan put on 2.49 per cent and Swiss stocks gained 1.15 per cent.
“Investors continued to hunt for bargains having seen stock prices slump over the last few weeks, forcing indices across Europe higher,” said City Index analyst Joshua Raymond.
News that eurozone economic growth slowed sharply to 0.4 per cent in the third quarter from 1.0 per cent in the second had little impact as the slowdown was widely anticipated.
On Wall Street, the blue-chip Dow Jones Industrial Average was up 0.85 per cent at around 1730 GMT, having jumped 2.27 per cent on Wednesday, with the tech-heavy Nasdaq Composite Index up 0.88 per cent.
Dealers there said the homes sales figures plus strong data from retailers in the run-up to the key Christmas shopping season bolstered sentiment, encouraging the view the economy is getting back on track.