European stocks rise after US Fed vows to pump trillions into markets

A bird flies as the sun rises behind the city of London financial district in London. (Hannah McKay/Reuters)

European stocks rose on Friday after the US Federal Reserve pledged to pump trillions into the financial system in the wake of Thursday’s huge market sell-off.

The pan-European STOXX 600 index (^STOXX), which had its worst day on record on Thursday due to deepening coronavirus panic, was up by almost 4.5% on Friday morning.

London’s FTSE 100 (^FTSE), which suffered its worst losses since 1987, rose by more than 4.9%.

Germany’s DAX (^GDAXI) was up by 3.8% and France’s CAC 40 (^FCHI), which also experienced sharp declines on Thursday, rose by around 4.6%.

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The New York branch of the Federal Reserve on Thursday promised to inject trillions of dollars into short-term funding markets, its third such move in four days, after investors warned that coronavirus-related market volatility posed problems for the bond market.

The Fed said that it would make the funding available in three tranches of $500bn (£397bn), and would start purchasing a broader range of US government bonds, known as treasuries, than it has thus far.

The unexpected move is yet another sign that the central bank may be ready to use a monetary policy toolkit not seen since the depths of the 2008 financial crisis.

“It feels appropriate that this week should end with a Friday the 13th. Yet following the worst session since 1987 — and the FTSE’s second-worst performance ever — investors were willing to give a rebound another go,” said Conor Campbell, a financial analyst at Spreadex.

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“Sweeping in at multi-year lows feels like a natural reaction to what went down on Thursday. Especially after the Federal Reserve attempted — if weren’t quite successful at — damage control by announcing a $1.5tn market-injection last night,” he said.

Stocks in Asia closed out the session in the red, taking their lead from investors in the US.

China’s SSE Composite Index (^SSEC) fell by 1.2% on Friday, while the Hang Seng (^HSI) was down 1.1% in Hong Kong at market close.

Japan’s Nikkei (^N225) fell by more than 6%. The KOSPI Composite Index (^KOSPI) in South Korea closed over 3.4% in the red.

Futures were also pointing to a higher open for US stocks, which also suffered their worst day since 1987 on Thursday.

S&P 500 futures (ES=F) climbed by 4.1%, Dow Jones Industrial Average futures (YM=F) rose by almost 4%, while Nasdaq futures (NQ=F) were up by more than 4.7% on Friday.