UK investors were welcomed by financial markets following the extended weekend’s diamond jubilee celebrations to a rotation back into risk assets. The risk on day saw with money flowing out of safe haven government bonds and into equities, with most major global indices up close to 2%. Commodities and the euro were also higher, purportedly on suggestions from EU sources that plans for rescuing Spanish banks are being explored. It came despite the lack of significant action by the ECB, and German data that rather disappointingly indicated industrial production had shrunk 2.2% in April, below analysts’ forecasts.
A key talking point for the day was the European Central Bank interest rate decision and accompanying press conference. The ECB held interest rates at 1%, defying those who were calling for an interest rate cut with Mario Draghi stating that nominal rates were still very low and real interest rates were negative. Draghi suggested the risks to the eurozone were increasing, and announced an extension to the banks unlimited access to ECB loans until January the 15th2013. However, many had hoped for hints of further LTRO stimulus, and with this not forthcoming, it appeared the ECB was (quite rightly in many people’s opinion), placing pressure on politicians to solve the continuing crisis.
Markets continued their gains throughout the afternoon, with the FTSE 100 finishing up 2.4% at 5384, led higher by miners and financials. The gains were replicated across global indices.