European shares posted their biggest one-day gain in three months yesterday after the US Federal Reserve unveiled plans to phase out its stimulus plan more gently than many had expected in the face of a stronger economy.
The Fed trimmed the pace of its monthly asset purchases only modestly, while saying a recovery in the world’s largest economy was gathering momentum.
The central bank also tempered its stimulus reduction by suggesting its key interest rate would stay at rock bottom even longer than previously promised.
“As the Fed announced the taper, it also pushed out expectations for when it is going to lift the policy rate,” said Daniel McCormack, strategist at Macquarie.
“None of this is a negative. Equities tend to outperform in tightening cycles... (because) growth and demand is strong. This all means you want to be in cyclicals such as industrials, technology, consumer discretionary and financials.”
Yesterday’s rally was led by cyclicals, with travel and leisure, media, financial services and insurance stocks all up more than two per cent.
The pan-European FTSEurofirst 300 rose 1.8 per cent to 1,281.87 points, its biggest one-day gain since September. The index is up 3.2 per cent so far this week, setting it on course for its biggest weekly rise since April and taking its gains for the year to 13 per cent.
The Euro STOXX 50 closed up 1.9 per cent at 3,031.05 points and the cost of insuring against future swings in the index, as measured by the Euro STOXX volatility index , fell 10.5 per cent, the biggest daily drop since October. European equities briefly trimmed their gains in the afternoon after a mixed set of US data including a sharp rise in the number of Americans filing new claims for unemployment benefits.
Some 48 of the 600 stocks in the STOXX Europe 600 index closed in negative territory, making this the broadest rise for the index since September, Thomson Reuters Datastream data showed.
They were led by Italy’s biggest commercial television broadcaster, Mediaset, up 16.5 per cent after saying it is considering merging its pay-TV operations in its core Italian and Spanish markets, paving the way for a possible sale of a stake in the new company.