Markets Rebound After Leaders Commit To Greece | May 22, 2012.
European and U.S equity markets rebounded overnight with market participants finding solace in global leaders unwavering commitment to keep Greece in the Euro-zone. Over the weekend the G8 leaders confirmed their support for a united Euro region, while opinion polls suggest the pro-bailout New Democracy Party is gaining support ahead of next month’s elections in Greece.
We've seen a succession of negative themes lead to a sustained period of weakness across the risk spectrum but moderate optimism began to feed through with investors also encouraged by Chinese Premier Wen Jiabao who over the weekend who indicated a need for stimulus in an effort to sustain strong growth in the region. After a series of largely uninspiring data points, there appears to be a significant shift in language from Premier Jiabao which indicates a gradual unwinding of policy initiatives designed to keep inflationary pressures under control.
While we may see a period of relative stability across global markets, it’s clear that without a solution to Greece’s political instability the balance of risk will continue to err on the side of caution. With plenty of dead air to fill between now and the next Greek elections on June 19, without intervention, it’s only a matter of time before markets take a deeper south-bound turn. Meanwhile, Speaking in Tokyo, Fed Atlanta President Dennis Lockhart expressed the need to keep policy easing measures such as quantitative easing in the Fed’s took kit, stating “QE3 will work under the right circumstances. But I don’t believe such circumstances prevail at this time.”
It was a relatively solid night across risk currencies with the Euro and commodity currencies rallying in unison. The Euro has managed to squeeze out gains with a break to the upside of $US1.28-figure while the Aussie rebounded to highs of 99.19 US cents. In essence, we’re seeing moderate optimism lead to a short squeeze across risk currencies with further upside momentum reliant on more positive news from the source, Europe.