Risk appetite leads to further equity gains and dollar weakness
Equity markets in Europe pushed higher yesterday with risk appetite on the rise following on from the FOMC’s dovish statement on Wednesday night. The Euro Stoxx 50 ended 1.6% higher at yesterday’s close. Meanwhile, the FTSE All-World equity barometer yesterday rose to its highest level since August, having rallied by almost 7% so far this year. On the currency front, with the dollar negatively correlated with risk it gave up more ground to both the euro and sterling. Eur/USD briefly pushed through the $1.318 mark mid-afternoon although has eased back to the $1.31 level which is broadly where it was this time yesterday. Cable (GBP/USD) was trading around the $1.566 level this time yesterday morning and is currently trading at $1.571 as I write. Elsewhere on financial markets, there were contrasting fortunes on the euro zone sovereign debt markets. Italian and Spanish bond spreads on 10-yr government debt continue to narrow. Conversely, Portugal continues to see its bond spread widen and the yield on its 10-yr government bonds is currently sitting at a record high of 14.8%. The ongoing talks regarding the scale of the haircuts (writedowns) on Greek debt has led markets to believe that holders of Portuguese government bonds will also face haircuts in due course. As the euro zone crisis continues to rumble on David Cameron has stoked up tensions with a stinging rebuke of euro leaders handling of the crisis in a speech at Davos. US Q4 GDP figures are the key release of the day. Financial markets will continue to keep an eye on the ongoing Greek debt talks.
