A surge in Chinese stocks gave European equities their initial push. The Shanghai Composite closed up 5.3%, marking the first rise in six sessions. It was the first chance equity investors there had to respond to the People’s Bank of China decision to inject 140 billion yuan ($21.8 billion) into the financial system. “Investors are cheering the news from the People’s Bank of China. The PBOC is combating the uncertainty by turning on all of its cylinders,” said Naeem Aslam, chief market analyst at AvaTrade, in a note.
“The question is if they can do more? Yes, for sure, they can bend the liquidity easing arm as much as they desire,” he said. Aslam noted China’s central bank has already cut its benchmark interest rates and cut the reserve ratio requirement for major banks, “which itself works out another massive liquidity as the banks could use that cash to lend.”
In Frankfurt, the DAX leapt 318.19 points, or 3.2%, to 10,315.62, clawing back the steep losses logged earlier in the week. In Paris, the CAC jumped 3.5% to 4,658.18, and the U.K.’s FTSE 100 climbed 3.6% to 6,192.03.
The greenback finished with gains against the euro and the pound as U.S. stocks stabilized and a spate of strong U.S. economic data helped assuage investors’ fears of sustained market turmoil. But the U.S. currency lost ground against the yen in a week of uneven trade that often saw the buck behave like a risk asset.
Minutes from a meeting of Federal Reserve policy makers released on Aug. 19 kicked off a period of weakness in the dollar, as investors pushed back their expectations for the timing of the first Federal Reserve interest-rate increase since 2006.
The dollar is sensitive to investors’ interest-rate hike expectations, because higher interest rates would increase the return on assets denominated in dollars, making the U.S. currency more attractive to foreign investors.
In precious metals, many investors have been betting on lower gold prices for months amid speculation that the U.S. central bank could raise rates as soon as September, and some of those closed those wagers by purchasing previously sold futures contracts, Mr. Gero said.
A rally in crude oil, which rose 6.3% to $45.22 a barrel on the Nymex, also lent gold prices some support. Gold is often traded as part of a commodity where oil occupies the largest segment, and a rally in oil prices tends to lift the value of the overall basket.