Stocks charge higher as investors cling to positive data and QE3 hopes

Stocks across Europe rose on Wednesday in choppy trade after data from the US in the shape of Durable Goods Orders and Housing Index outperformed market expectations, boosting near term sentiment whilst investors continued to trade on the front foot on optimism that Ben Bernanke could mention some form of quantitative easing to help support the economic recovery this Friday.

The FTSE 100 traded higher by as much as 2% at one point after the stronger US data before falling back to close around 1.3% higher led by strong miners, banks and oil firms. The DAX however outperformed broader EU Indices to rally near 2.7% on the day but given the fact that the DAX has badly underperformed already weak trading this month for stock indices, one may need to take today’s stellar gains with a bit of a pinch of salt.

An eerie sense of dé jà vu?

There is a sense of eerie dé jà vu this week considering it was at this point last year when Ben Bernanke first hinted towards the start of a second round of quantitative easing and investors are growing in belief that this may be a feat repeated this week when central bankers meet at Jackson Hole. Certainly it’s hard to justify some of the gains we have seen over the last 48 hours without taking into consideration an expectation from investors that perhaps the Federal Reserve may deliver on what traders want to see which is more QE.

The stock gains we are seeing however tells us more about continued volatility and investor sensitivity than renewed investor confidence. What we have seen is investors willing to cling to every ounce of positivity out there to buy stocks for fear of missing out on any longer term rise. That said, gains are being cashed in quickly which reminds us that traders remain on edge and this is what is making the markets very choppy this week with some wild price swings.

Investors cling to positive US data

It is the better than expected US data this afternoon that has helped to support the initial charge higher for stocks across Europe. US durable goods orders came in much stronger than expected, rising double that of consensus at +4% with new orders also stronger. This has helped to ease investor concerns somewhat about a sharp downturn in US activity over the last few months, with sensitivities high amidst GDP data due out on Friday. US Home Price Index also saw a gain of 0.9% when the market was expecting a fall, and this helped to trigger more stock gains into the afternoon.

Perversely somewhat investors also cheered a worse than expected fall in German IFO business climate, which fell to 108.7 when the market was looking for a fall to 111.0. With investor confidence shattered after the months heavy stock falls, there is an element here of expecting a much sharper fall in business climate, towards the 100 level, and the fact that this did not materialise interestingly enough has given investors a bit of relief.