- Monetary stimulus supports global equity markets as well as China committing to economic growth. Furthermore, the Australian Central Bank keeps rates on hold. Hence, US and Asian stock prices rise.
- In Europe, Ireland and Portugal are expected to receive more support from the EU.
- The sterling remains under pressure given expectations for more quantitative easing from the Bank of England this week. Markets overnight
Ireland and Portugal are expected to receive further support from the EU. Commissioner Olli Rehn said yesterday that the EU finance ministers may commit next month to giving Ireland and Portugal more time to repay bailout loans. This should provide support for both Irish and Portuguese government bonds, despite the political unrest in Italy.
The US equity market rose, with the Dow Jones closing within 40 points of a new record. This is on the back of renewed optimism that the Fed will continue to provide monetary stimulus through the purchase of US Treasury bonds. Fed Vice Chairman Janet Yellen said the Fed should press on with USD85bn in monthly bond buying while tracking possible costs and risks from the program. The Dow closed at 14,127, up 0.3%, while the S&P 500 advanced 0.5%.
The US bond market responded with a rise in yields as the 10Y US Treasury yield rose 3bp to 1.88%, while 2Y yields were unchanged.
Asian equity markets followed the positive sentiment from the US as the benchmark indices across the region rose after two days of losses. This is due to Yellen's comments yesterday, and today from a nominee for deputy governor at the BoJ, that central banks will continue stimulus measures. Furthermore, China maintained its growth target for 2013, which is set at 7.5% and inflation at 3.5%.
Finally, the Reserve Bank of Australia kept its monetary policy rate unchanged at 3%, as the world economy stabilizes and commodity prices recover despite stronger-than-expected retail sales in January and a narrowing of the current account deficit.
In the FX markets movements have been modest. The EUR/USD pair continues to range-trade around 1.30 and the EUR/JPY is trading at the 121 level. Sterling remains under pressure, given speculation that the BoE will signal more monetary easing at this week’s policy meeting.