European and U.S equity markets rebounded overnight withmarket participants finding solace in global leaders unwavering commitment tokeep Greece in the Euro-zone. Over the weekend the G8 leaders confirmedtheir support for a united Euro region, while opinion polls suggest thepro-bailout New Democracy Party is gaining support ahead of next month’selections in Greece.
We've seen a succession of negative themes lead to asustained period of weakness across the risk spectrum but moderate optimismbegan to feed through with investors also encouraged by Chinese Premier WenJiabao who over the weekend who indicated a need for stimulus in an effort tosustain strong growth in the region. After a series of largely uninspiring datapoints, there appears to be a significant shift in language from Premier Jiabaowhich indicates a gradual unwinding of policy initiatives designed to keepinflationary pressures under control.
While we may see a period of relative stability acrossglobal markets, it’s clear that without a solution to Greece’s politicalinstability 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 onJune 19, without intervention, it’s only a matter of time before markets take adeeper south-bound turn. Meanwhile, Speaking in Tokyo, Fed Atlanta PresidentDennis Lockhart expressed the need to keep policy easing measures such asquantitative easing in the Fed’s took kit, stating “QE3 will work under theright circumstances. But I don’t believe such circumstances prevail at thistime.”
It was a relatively solid night across risk currencies withthe Euro and commodity currencies rallying in unison. The Euro has managed tosqueeze out gains with a break to the upside of $US1.28-figure while the Aussierebounded to highs of 99.19 US cents. In essence, we’re seeing moderateoptimism lead to a short squeeze across risk currencies with further upsidemomentum reliant on more positive news from the source, Europe.