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European stocks push higher after FOMC dovish comments

Article By: ,  Financial Analyst
January 26, 2012 4:35 PM

European stocks received a boost after the Federal Reserve struck an overly dovish tone last night and pledged to keep US interest rates at exceptionally low levels through to late 2014 at least, compared to a previous guidance of mid-2013. The dovish tone and highly accommodative stance taken by the Fed, which hints at a potential for more quantitative easing, gave US stocks a boost in trading last night and there has been a firm follow through to European trading today, with resource stocks benefitting in particular.

By European close, the FTSE 100 had rallied 72 points to close at 5795, with similar gains seen for the French CAC and German DAX indices.

It is now important for the FTSE 100 to break above strong resistance at 5820 if its near term bullish form is to continue and help it to target the 6000 level once again.

It’s been a ‘risk on’ start to trading firmly on the back of the FOMC pledge to strongly support the US economy through to 2014, which surprised some. The sceptic in me would question what the Fed has seen to warrant a more aggressive accommodative stance, particularly considering recent US economic data has highlighted an improvement in US activity. For now however, we have seen a positive reaction from investors who have taken the Fed’s pledge in their stride and aided their appetite for risk.

From a sector perspective, as one might expect with an accommodative stance from the Fed, it is resource stocks benefitting the most in trading. The FTSE 350 mining sector has rallied over 2% in early trading as a result, and it is here where we can locate much of the FTSE’s early strength.

Financial stocks have also seen positive buying, with bank shares such as Lloyds Banking Group rallying 3% in the risk on environment.

Stronger mining updates
Stronger company earnings and updates have also given stocks a fillip to push higher and counter much of yesterday’s weakness.

Shares in Kazakhmys led the FTSE’s charge after the Kazakh-focused miner posted annual copper production that broadly met forecasts and eased shareholder minds by forecasting a similar rate of production for 2012. 2011 output of copper came out at 299,000 tonnes.

Anglo American also reported well-received earnings, with a 10% rise in copper output in the last quarter of 2011 helping to see the miner recover from a poor third quarter’s production that was hit by poor weather conditions. Lonmin also saw its shares receive a lift too as it updated shareholders.

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