European shares rebound on Fed minutes

London - European shares bounced back from the previous session's two-month lows on Thursday on expectations that the US Federal Reserve will keep interest rates low for a longer period.

The FTSEurofirst 300 index of top European shares was up 1% at 1 332.10 points by 07:05 GMT, after falling 0.8% in the previous session. London's benchmark FTSE 100 index rallied 0.90% to 6 540.72 points ahead of a Bank of England (BoE) interest rate decision.

The BoE will announce its interest rate decision on Thursday. The BoE monetary policy direction is very crucial to South Africa’s key trade partner the Eurozone.

“We foresee Mark Carney will take a dovish stance on policy and keep rates unchanged at 0.5% in an attempt to avoid a policy divergence already experienced with the Fed," Mabyanine Phiri, portfolio associate at ACM Gold, told Fin24.

"This is based on the fact that the UK has outpaced the eurozone in recovering from the 2008 crisis. The euro-region economy is in an unsafe state and the European Central Bank already has no choice but to embrace quantitative easing measures. Such a policy, which entails buying government bonds and expanding the money supply, tends to devalue the currency.”

The market was rallying following the release late on Wednesday of the minutes of the Fed's September 16 to 17 meeting.

The US central bank expressed concern the rising dollar could slow a needed rebound in inflation and highlighted economic turmoil in Europe and Asia, another factor behind the Fed's stance towards keeping an accommodative policy for the near future.

European equities, however, remained vulnerable to further declines following Europe's poor economic outlook, traders said.

Figures showed on Thursday Germany's exports slumped by 5.8% in August, their biggest fall since the height of the global financial crisis in January 2009, in yet another sign that Europe's largest economy was faltering.

Frankfurt's DAX 30 index jumped 0.97% to 9 083 points and the CAC 40 in Paris surged 1.32% to stand at 4 223 compared with Wednesday's closing level.

European indices, which had been falling since Tuesday, shot higher at the start of trading following hefty gains on Wall St.

Michael Hewson, chief market analyst at traders CMC Markets UK, noted that "a rather surprisingly dovish set of Federal Reserve minutes sent the US dollar plunging and brought US stock markets off multi week lows".

He added that "investors look ahead to today's Bank of England meeting with every expectation that this meeting will be as equally non-eventful as the previous 66 meetings, with no change in rates expected".

Last week, the European Central Bank held its record-low interest rates unchanged after cutting borrowing costs in September to help the moribund eurozone economy.

European stocks markets closed lower on Wednesday, extending the previous day's sharp losses caused by weak economic growth forecasts and the spreading Ebola crisis.

The International Monetary Fund (IMF) this week warned that the world economy faced increased risks from the crisis in Ukraine, ongoing Middle East woes and the spread of Ebola. The damaged inflicted by the economic crisis that began in 2008 is "proving tougher to resolve", especially in Europe, it noted.