Global Stimulus Optimism Boosts Risk Sentiment
|The FTSE followed Asian markets higher on the open as stimulus hopes tempered recession fears. Risk appetite continued to rebound, albeit cautiously following a disastrous week for stocks last week. Riskier assets such as stocks are nudging higher for a second day, whilst safe havens such as gold, the yen and bonds are falling lower.
Sentiment is improving as investors are growing optimistic that central banks across the globe will adopt a more accommodative stance to monetary policy to sure up their economies; economies which are being negatively impacted by the US – Sino trade dispute. The expectation of further stimulus is cushioning the markets from lingering uncertainty.
The ECB's Olli Rehn pointed towards more "impactful" monetary policy measures, China unveiled plans to cut corporate borrowing costs, several central banks have cut interest rates and eyes are turning towards the Fed Jerome Powell's speech at the annual central bankers meeting at Jackson Hole, Wyoming on Friday. The next move by the market depends on whether Jerome Powell will indicate another slashing of interest rates is on the cards, potentially for September. An indication that more stimulus is around the corner could see risk sentiment pick up further.
Pound gives in to Brexit concerns
The pound was moving lower offering support to the FTSE amid growing Brexit uncertainty. The pound slipped below support at $1.21 as Boris Johnson heads off the visit Germany's Angela Merkel and French President Macron. Whilst Bojo will request that the EU drops the Irish backstop or risk the UK leaving the EU without a deal all indicators point to failure in his mission. The request has been rebuffed by the EU once again, in a familiar case of Deja-vu. With the Brexit deadline creeping worryingly close, the optimism that was keeping the pound buoyed above $1.21 is fading.
Euro could struggle on Italian political developments
The euro is seen giving back earlier gains. A better than expected German PPI reading was being overshadowed by growing concerns over the political situation in Italy. Matteo Salvini, Italian Deputy Prime Minister, who also recently called for an early election is flexing his political muscles once again. His suggestion of a €50 billion budget being necessary to bring about a "fiscal shock" to Italy can only have a bearish influence on the euro.
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