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Hopes of central bank action lift markets further

Mario Draghi’s accommodative comments last week were supported over the weekend by Jean Claude Juncker who, as President of the Euro Group, intimating that the existing bailout fund will act in concert with the ECB in helping control the regions crisis. Such strong words form senior political figures appeared to have reassured markets in the short term, with bond yields in Spain under 6.5% (from last week’s 7.5%), and equity markets staging a conspicuous rally.

The green screens of this morning’s equity markets came despite GDP data that showed today the Spanish economy had contracted for the third consecutive month, falling 0.4% in the second quarter of 2012. This was however in line with economists’ expectations, and is perhaps not a terrible results given the UK’s recent announcement that GDP fell 0.7% over the same period. However, unlike the UK, Spain is anticipated to continue shrinking well into 2013 as extra government spending cuts take effect and consumers and businesses prove reluctant to spend, understandable given the macroeconomic and political uncertainty.

The FTSE 100 finished the day 1.2% higher at 5693, in line with European although collectively outperforming the US indices that traded marginally into negative territory. The rally was typical of money flowing back into risk assets, with the downtrodden sectors of financials and miners populating the FTSE 100’s leader board.

This was posted in Bdaily's Members' News section by James .