MetaTrader

By Martin Essex
Of DOW JONES NEWSWIRES


LONDON (Dow Jones)--European stocks and bonds surged, while the dollar weakened and oil prices jumped as Europe's markets reacted strongly to the U.S. Federal Reserve's move Wednesday to buy $300 billion of long-term Treasurys and up to $1.25 trillion of mortgage-backed securities issued by Fannie Mae and Freddie Mac.


The dollar was a major casualty of the Fed's move further into quantitative easing. The euro soared to $1.3473 in late New York business Wednesday, up from $1.3017 the day before, and was even higher by 1015 GMT Thursday, at $1.3514 - above the key $1.35 level for the first time since Jan. 9.

The Fed's move into quantitative easing Wednesday broke the dollar's back and henceforth any periods of intra- and inter-day dollar strength is to be sold into rather than weakness bought, said Dennis Gartman in The Gartman Letter.

"Further, this sets the tone for how we shall trade commodities henceforth: bullishly and almost universally so," he said.

The move in bond markets was equally dramatic. After the 10-year U.S. Treasury yield tumbled in New York Wednesday to end at 2.545%, down from 3.01% Tuesday, it fell even further to 2.53% at 1025 GMT Thursday, after briefly touching 2.50%.

In response the 10-year benchmark German bund yield dropped to 3.06% from 3.22% late Wednesday, and the 10-year bellwether U.K. gilt yield fell to 3.015% from 3.105%.

The effects of the Fed's further move into quantitative easing - a weaker dollar, lower bond yields and firmer equities - are likely to continue, at least for a while, said Marshall Gittler, chief strategist at Deutsche Bank (Suisse).

"The purchases will help to absorb the supply of bonds that will be coming in the next few months due to mortgage refinancing and Treasury issuance to fund the budget deficit," he added.

Stock prices firmed, with the major European indexes gaining between 0.5% and 0.9%, and the April Nymex crude oil futures contract climbed to $50 per barrel for the first time since Jan. 26, trading at $50.15 at 1035 GMT.

Looking ahead, U.S. Treasury Secretary Timothy Geithner's detailing of the U.S. toxic asset sale plan in Congress Thursday could be crucial for all asset markets and bank stocks in particular, with participants looking for details of how toxic assets could be removed from balance sheets, said Kenneth Broux, an economist at Lloyds Banking Group.

"A positive outcome could help the dollar to claw back ground against its major counterparts," he added.

Moreover, the U.S. stock markets may struggle to keep up their advance. "The (Fed's) news helped to lift the major indexes overnight but it seems we may not be able to hold on to the gains," said Nick Mitchell, a dealer at CMC Markets.

-By Martin Essex, Dow Jones Newswires; +44-20-7842-9464; martin.essex@dowjones.com

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(END) Dow Jones Newswires

March 19, 2009 06:58 ET (10:58 GMT)