Investors stuck their toes back into risky waters yesterday after being emboldened by signs low US interest rates are on hold, pushing up equities in Europe while giving the British pound some much needed relief.
An equities rebound began on Wednesday after minutes from the Federal Reserve’s June policy meeting showed policymakers were split on interest rate policy, leading analysts to conclude that no rate hike is looming.
This caused the dollar to soften, offering the British pound some relief after the battering it received following Britain’s shock vote to leave the EU.
Many analysts, still stunned by the uncertainties created by Brexit, believe that the world economy needs easier, not tighter, credit conditions until the British referendum’s implications are sorted out.
Minutes released yesterday from the European Central Bank’s monetary policy meeting in early June showed it was concerned about the health of eurozone banks and about the economic fallout from Britain’s vote to quit the EU.
Data showing industrial production in Germany contracted more than expected in May, suggesting that growth in Europe’s biggest economy is slowing, provided more ammunition for the ECB to keep its stimulus taps open.
London’s FTSE 100 index ended the day with a gain of 1.1% at 6,533.79 points, while Paris rose 0.8% at 4,117.85 points and Frankfurt added 0.5% at 9,418.78 points.
The US Labour Department said yesterday initial jobless claims fell by 16,000 to 254,000 in the week ending July 2, near a three-month low.
Separately, private payrolls firm ADP said companies added 172,000 jobs in June, slightly more than the 168,000 positions created in May.
That helped US stocks push higher in earlier trading, but they faded and the Dow was down 0.05% in late morning trading.
Banking stocks firmed across most of Europe, but the financial sector remains under pressure after the European Central Bank warned that Italy’s number-three lender and the world’s oldest bank had dangerously high levels of bad debt.
French food giant Danone saw its shares whipped up 1.9% in Paris after it agreed to buy US organic foods producer WhiteWave Foods with a view to creating a world leader for organic produce.
While the growth-friendly stance of the Fed diverted some attention away from the headache for markets that is Brexit, investors are far from reassured.
The pound managed to hold up against the dollar, even climbing back above $1.30 temporarily, having recovered from hitting a 31-year low Wednesday although uncertainty over Britain’s future is keeping downside pressure on sterling.