Below is a quick market update written by one of our portfolio managers for your information.
After last week’s rout, markets seem eager to recover bolstered by rebounding oil prices, stabilising Chinese markets, solid US consumption data and the implication that the Bank of Japan may instigate more QE off the back of weaker than expected GDP data released on Monday. Japanese equity markets were up 7% on Monday on this news. We may see the effect of this on markets compounded in March if, as we expect, the ECB announces an extension to their current QE programme.
This week markets have also been lifted by ECB President Draghi’s dovish comments during a testimony before European lawmakers. Selected quotes:
“First, we will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices.”
“Second, in the light of the recent financial turmoil, we will analyse the state of transmission of our monetary impulses by the financial system and in particular by banks,”
“If either of these two factors entails downward risks to price stability, we will not hesitate to act.” The assured nature of this rhetoric echoes Draghi’s promise to ‘do whatever it takes’ to save the Euro back in 2012.
Let’s hope the last two days are signs of some stability in the markets as they continue to search for direction in what has now become a complicated and quickly shifting economic environment.
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