Key news

  • A bit of nervousness has returned to the global stock markets ahead of today’s important monetary policy meeting in the ECB and the Bank of England. US stock markets ended slightly down in yesterday’s trade and Nikkei is down 1% this morning.

  • Greek Finance Minister raises concerns about the strength of the euro.

  • UK Chancellor of the Exchequer, George Osborne, has called for easier UK monetary policy ahead of today’s important testimony by Mark Carney.


Markets Overnight

The continued strengthening of the euro seems to be worrying some European policy makers. On Tuesday French President Hollande called for initiatives to curb the strengthening of the euro and yesterday Greek Finance Minister Yannis Stournaras echoed the concerns. The euro has lost a bit of momentum this week after it touched 1.37 on Friday. That said, we do not view this as a trend reversal and it should be noted that, even though some European policy makers worry about the strength of the euro, we are still very far from seeing any actual intervention to curb it. We do not expect the ECB to implement measures to stop the strengthening of the euro at the present state but investors will undoubtedly be watching out for comments at today’s ECB meeting.

Global stock markets seem to have been in a bit of a wait-and-see position ahead of today’s ECB and Bank of England policy meetings. US stock markets closed slightly lower yesterday on a day with little macroeconomic news. However, the Nikkei is down more than 1% this morning after disappointing numbers from, among others, Japanese camera maker Nikon but the setback should be seen in light of the four-year high and 3.7% jump in Nikkei yesterday.

Monetary policy is clearly at the top of the agenda for the UK markets at the moment. Today the Bank of England has it regular policy meeting but, more importantly, Mark Carney, who will become BoE governor in July, is testifying in the British parliament. Yesterday UK Chancellor of the Exchequer, George Osborne, voiced frustration over the Bank of England’s apparent reluctance to pursue further monetary easing at the present stage, which undoubtedly has added to the weakening trend in the pound. Yesterday we published a paper on the possible market implications if the BoE were to switch to a nominal GDP target from the present inflation target, see Bank of England Preview: Waiting for Carney, 6 February.

Global fixed income markets have not seen much action in the past 24 hours, even though the return of a bit of risk aversion has pushed up Spanish and Italian yields slightly. That said, US 10-year government bond yields are still close to the highest level since April last year, indicating that growth optimism continues to build.