Europe midday: Stocks push higher on dovish Yellen speech

European stocks pushed up on Wednesday, extending earlier gains as investors welcomed dovish comments from Federal Reserve Chair Janet Yellen.

At midday, the benchmark Stoxx Europe 600 index was up 1.5%, Germany’s DAX was 1.8% higher and France’s CAC 40 was up 2%.

At the same time, oil prices gained after a report by the American Petroleum Institute late on Tuesday showed US crude stocks likely rose by 2.6m barrels last week to 534.4m, which was less than the 3.3m analysts had expected.

West Texas Intermediate was up 1.5% to $38.84 a barrel and Brent crude was 1.1% firmer at $39.57.

“European markets are playing catch-up higher, after an ultra-dovish Janet Yellen detailed a much more cautious and patient approach to normalising US monetary policy than the market had been expecting,” said Rebecca O’ Keeffe, head of investment at stockbroker Interactive Investor.

“This came as a particular surprise after the more hawkish comments over the past week from many of Yellen's colleagues and has helped to push the dollar sharply lower and risk appetite higher. Investors can only hope that the new data-dependent Fed will not be derailed by any unexpectedly ‘good’ economic data, starting on Friday with the latest employment report.”

In a speech at the Economic Club of New York, Yellen said the central bank would move cautiously when it came to further interest rate hikes, striking a dovish tone that contrasted greatly with the hawkish comments last week from San Francisco Fed President John Williams, Atlanta Fed President Dennis Lockhart and St Louis Fed President James Bullard.

Yellen highlighted global economic uncertainty, including the slowdown in China and sliding oil prices as reasons behind the Fed’s decision not to hike in January or March and said there would be “only gradual increases” going forward.

“Considering the risk to the outlook, I consider it appropriate for the committee to proceed cautiously in adjusting policy,” Yellen said, noting that growth this year was expected to be weaker than previously thought.

Investors also digested remarks from European Central Bank executive board member Benoit Coeure, who said in an interview with Politico that the central bank will not take rates into “absurdly negative territory”.

Coeure told Politico that negative interest rates were not the ECB’s main instrument, they just support its overall policy.

“And looking ahead, we’re not short of instruments – our choice is quite large. We will be able to deal with adverse situations if necessary.”

A weaker dollar, which makes commodities more affordable for holders of other currencies, helped to push basic resources up, with the Stoxx 600 index for the sector 5.2% higher. Meanwhile, the corresponding sub-index for oil and gas was up 3.5% as oil prices advanced.

In corporate news, German retailer Metro AG surged after announcing plans to split in two to boost the company’s value.

On the macroeconomic front, the European Commission’s economic sentiment index slipped to 103.0 points in March from 103.9 in February, weaker than the 103.8 reading economists had expected.

Meanwhile, the business climate indicator nudged up to 0.11 from 0.09 the previous month, beating expectations for a reading of 0.08.

“As consumer confidence remains at its lowest level since December 2014, many observers will conclude that Mario Draghi’s latest pack of stimulus measures is yet to do the trick,” said Dennis de Jong, managing director at UFX.com.

“Following the Brussels terror attack and the increasing threat of a Brexit, there’s much uncertainty in the Eurozone and it could be some time before confidence emerges out of negative territory.”

Still to come, investors will eye the release of the ADP employment report in the US at 1415 BST, which is widely seen as a pre-cursor to Friday's all-important nonfarm payrolls.