European stocks up on earnings cheer ahead of Fed

LONDON (AP) — European stocks rose and Wall Street was expected to open higher Wednesday after a batch of upbeat earnings reports and ahead of the latest economic update from the U.S. Federal Reserve.

The FTSE 100 index of leading British shares was up 41.40 points, or 0.8 percent, at 5,078.61 while Germany’s DAX rose 59.88 points, or 1.1 percent, at 5,413.23. The CAC-40 in France was 52.26 points, or 1.5 percent, higher at 3,636.51.

Sentiment was buoyed by some forecast-busting earnings in Europe.

British retailer Marks & Spencer’s shares rose nearly 6 percent after it reported better than expected first-half profits and a pickup in market share. Societe Generale shares rose 3 percent after France’s second-largest bank reported a doubling in third-quarter profit on strong earnings in investment banking, and shares in German sportswear company Adidas spiked 4 percent after it voiced cautious optimism for the coming year despite a 30 percent fall in third-quarter profit.

Though the earnings helped provide some support in Europe’s markets, investors are warning of volatile trading in the hours and days ahead amid a raft of economic news, particularly from the U.S. Stocks around the world have suffered one of their worst weeks since July amid concerns about the pace of the global economic recovery.

“Investors may well still be harboring some doubts; there are convincing arguments to suggest that equities remain broadly inflated beyond realistic earnings targets,” said David Jones, chief market strategist at IG Index.

Wall Street was expected to open higher and recoup Tuesday’s losses. Dow futures were up 59 points, or 0.6 percent, to 9,776 while the broader Standard & Poor’s 500 futures rose 6.2 points, or 0.6 percent, to 1,047.90.

The latest jobs survey from the ADP payrolls firm came in largely as anticipated — U.S. private employers shed 203,000 jobs in August — and did little to alter expectations in the markets that Friday’s official government payrolls data for October will show unemployment in the U.S. above 10 percent. The payrolls data often set the stock market tone for weeks.

Soon after the Wall Street open, investors will be digesting the monthly survey from the Institute for Supply Management for signs the services sector is growing strongly.

Later, the Fed takes center stage when it unveils its latest interest rate decision. Though no shift in interest rates is expected, investors will be on the lookout for any changes to the accompanying statement.

In particular, they will be looking to see if the Fed is more upbeat about the economic outlook and whether it provides pointers as to how it will withdraw the monetary stimulus in the future.

As well as slashing its benchmark interest rate to near zero percent, the Fed has pumped in trillions of dollars into the financial markets in an attempt to shore up confidence and get the world’s largest economy moving forward again from the depths of recession.

Neil Mellor, an analyst at Bank of New York Mellon, doubts there will be much change in the language of the statement, especially as Fed chairman Ben Bernanke has consistently voiced concerns about deflation.

“It must be presumed that Bernanke’s strategy is one that favors taking risks with inflation rather than taking risks of falling into a trap (of deflation) that he has written a treatise on how to avoid,” said Mellor, referring to Bernanke’s past research as an academic. “As such, that should entail a glacial pace of policy change.”

The European Central Bank and the Bank of England also announce interest rate decisions, on Thursday. Interest will focus on the Bank of England as most analysts reckon it will increase the amount of money it pumps into the economy.