Traders work at the Frankfurt Stock Exchange. The DAX index closed up 0.82% at 9,588.15 points yesterday.
Europe’s main stock markets firmed yesterday, continuing a rally sparked by dovish comments from the head of the ECB last week ahead of the announcement of France’s new government.
In Paris, the CAC 40 jumped 1.18% to 4,393.41 points, just hours before the expected announcement of a new government.
Frankfurt’s main DAX index added 0.82% to close at 9,588.15 points. In London, the FTSE 100 index gained 0.70% compared to Friday’s close after a public holiday, ending on 6,822.76 points.
“Global markets extended gains on a combination of bullish US data and expectations of looser ECB policy saw stock indices on both sides of the Atlantic edge higher,” said Kash Kamal at Sucden Financial.
“The risk on mood was supported by stronger than anticipated data coming out of the US today with durable goods orders, consumer confidence and the Richmond Fed manufacturing index all exceeding estimates.”
Yesterday’s gains added to a rally sparked last week by signs the European Central Bank is considering injecting cash into the eurozone economy to ward off any threat of deflation.
That optimism overcame fears that the collapse of France’s government on Monday could weigh on already stalling growth in the eurozone’s second-largest economy.
Sentiment was also bolstered by week-end comments from US Federal Reserve head Janet Yellen on the bank’s monetary policy.
That helped to support US stocks, with the S&P 500 pushing back over 2,000 in early trade supported by data showing record durable goods orders in July, and continued house price gains.
In mid-afternoon trading, the Dow Jones Industrial Average gained 0.31% to 17,130.44 points and the tech-rich Nasdaq added 0.29% to 4,570.50 points.
The S&P 500 rose 0.26% to 2,003.03 points.
In Paris, President Francois Hollande was set to unveil a new cabinet after the shock resignation of the government amid a row over economic policy plunged the country into deep crisis.
The reshuffle was seen as a bid to restore political order after a public row in his cabinet over how to cure the eurozone’s ailing second-largest economy.
Analysts at Societe Generale said the move would likely “help reduce policy uncertainty at the domestic level” but predicted that “the French economy will underperform the euro area”.
“We think this represents a welcome clarification of the economic strategy, but increases the risk of a political crisis,” added Barclays’ Philippe Gudin.
Markets instead drew strength from ECB signals that it could start possible quantitative easing in a bid to stoke growth and ward off deflation.
“The possibility of quantitative easing in the eurozone continued to be supportive of prices,” said Jasper Lawler, a market analyst at CMC Markets.
In corporate news, shares in marketing giant WPP added 1.39% after it reported broad revenue growth across its business, even eeking out some gains in Russia despite political tensions over the Ukraine crisis.
Drugmaker AstraZeneca rose 1.12% “as speculators bet that US firm Pfizer could come back with an increased offer for the company after a three-month cooling-off period ended,” said Tony Cross at Trustnet Direct.
Sentiment was also bolstered by weekend comments from Fed chief Yellen on the bank’s monetary policy that there is “considerable uncertainty about the level of employment”.
Traders interpreted her remarks as indicating the Fed might raise interest rates sooner than had been expected.
