European stocks rally as investors take heart from Jay Powell comments

European stocks rallied on Wednesday after investors drew optimism that the US Federal Reserve would not need to raise its benchmark interest rate more than expected.

Equities in Europe followed late gains overnight in the US after remarks from the US central bank’s chair Jay Powell that were less hawkish than some traders had anticipated.

Powell was responding to Friday’s blockbuster job’s report, which showed higher jobs growth than economists forecast and had led to a sell-off in US stocks and bonds. US markets pushed on following his comments, with the S&P 500 closing 1.3 per cent higher.

The benchmark Stoxx 600 rose 0.7 per cent and Germany’s Dax was up 0.9 per cent. The FTSE 100 gained 0.7 per cent to hit a record intraday high.

The dollar index, a measure of the US currency’s strength against a basket of six peers, fell 0.4 per cent. The euro strengthened against the greenback, up 0.3 per cent to $1.07.

Yields on 10-year German government bonds rose 0.07 percentage points to 2.37 per cent and 0.06 percentage points on the 10-year French equivalent. Separately, the European Central Bank said it would cut the maximum rate it paid on government deposits to encourage investors to put their money in the market.

At The Economic Club in Washington, DC, Powell stressed the need for further rate rises to cool the economy. Addressing the jobs data, he said it “shows you why we think this will be a process that takes a significant period of time . . . the labour market is extraordinarily strong”.

US futures lost ground, with contracts tracking the blue-chip S&P 500 and the tech-heavy Nasdaq losing 0.3 per cent.

“The process has a long way to go and further interest rate increases will probably be needed,” said Toby Sturgeon, Global Head of Fiduciary Investment Services at Zedra, a wealth management company. “With so much volatility in all markets, we will watch closely the changes in the coming weeks.”

In Asia, the Hang Seng index was closed flat, down less than 0.1 per cent, while the Chinese CSI 300 fell 0.4 per cent.

On commodities markets Brent crude, the international benchmark, rose 1.1 per cent while its US counterpart, WTI, was 1.3 per cent higher.