European stock markets closed higher yesterday, supported by strong German trade figures and speculation that the US Federal Reserve may take fresh measures to turn around a slowing economic recovery.
Dealers said a poor US employment report on Friday had hit markets then but European investors noted how Wall Street came back strongly to close with only modest losses on the day.
With the Fed meeting today, all eyes are on the outcome in the hope that the US authorities can come up with some new stimulus to keep the recovery on track.
At the same time, some suggested that recent weak US data, including Friday’s employment report, does not necessarily mean the economy risks falling back into recession and that the recovery, if slower, will continue.
In London, the FTSE 100 closed up 1.47 per cent at 5,410.52 points. In Paris, the CAC 40 gained 1.65 per cent to 3,777.37 and in Frankfurt the DAX put on 1.47 per cent to 6,351.60 – its best finish since August 2008.
“Today’s stronger price action is a result of investors betting that the Fed could start to inject extra stimulus into the markets to help maintain the US economic recovery,” said City Index analyst Joshua Raymond.
“But it is a double-edged sword as whilst extra stimulus could help to overcome fears of deflation and slow growth, it could equally force a dependence upon stimulus that could ultimately lift (growth) artificially.”
“The sharp turnaround in the US markets last Friday and a strong trading session in Asia locked in a positive start,” Mr Raymond added.
Goodbody analyst Deidre Ryan said investor sentiment remained fragile after the latest downbeat US economic data.
“Although equity markets have regained some ground of late, confidence remains fragile, a fact that was very much evident on Friday with the release of the latest US payrolls report,” she said.
“With the labour market recovery proving sluggish at best, the report will have provided much food for thought for the Fed.”
Strong German trade data for June provided additional support, with a sharp pick-up in imports cheered in the hope that it shows Germany’s lead will help other European countries riding in its slipstream.
German exports soared 28.5 per cent from a year earlier to €86.5 billion in June, the highest level since October 2008, while imports jumped 31.7 per cent to hit a record €72.4 billion.
In New York, the Dow Jones Industrial Average was 0.39 per cent higher at around noon hour (1600 GMT), with the tech-rich Nasdaq Composite up 0.51 per cent.
Dealers said there said the market was encouraged by Friday’s performance after the US economy lost 131,000 jobs, well above forecasts for 87,000, pointing to some resilience.
A succession of strong second quarter company results helped sentiment, they said, citing the latest sales figures from McDonald’s fast-food restaurant chain.
“The equity markets are higher ... after showing some relative resilience to Friday’s disappointing US labour report and ahead of” today’s Fed meeting, analysts at Charles Schwab & Co said.
The Fed is expected to keep interest rates at historic lows while analysts will be looking for any hint of a return to stimulus spending.
Elsewhere in Europe, Amsterdam was up 1.42 per cent, Brussels rose 0.83 per cent, Madrid gained 1.52 percent, Milan added 1.22 per cent and Swiss stocks put on 1.11 per cent.
In Asian trade earlier yesterday, markets were mixed, with Tokyo down 0.72 per cent as Hong Kong added 0.57 per cent and Shanghai 0.53 per cent. Sydney gained 0.63 per cent.