Global Markets Strengthen On Possible Stimulus

Global Markets Strengthen On Possible Stimulus

The European stock market recovered on Friday. The Stoxx Europe 600 gained 1.7%, the German index DAX and the French index CAC both added 1.8%, while the UK’s FSTE grew 1.1%.  

Global Markets Strengthen On Possible Stimulus
Global Markets Strengthen On Possible Stimulus

The increase followed US indexes’ stabilization on Thursday and the potential for European and US central banks to add economic stimulus.

Calls for Fed bond purchasing
The US Federal Reserve is in the process of ending its monetary stimulus program of the last few years – bond-buying, or quantitative easing – as the economy showed improvement, Bloomberg reported. The program is scheduled to terminate at the end of October. But some officials believe the policy should continue beyond October as the markets regain their footing.

James Bullard, President of the St. Louis Federal Reserve, said he would prefer the Fed keep its options open.

“We have to make sure that inflation expectations remain near our target, and for that reason, I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data-dependent, and we could go on pause on the taper at this juncture,” Bullard said in an interview with Bloomberg, referring to the gradual ending of the stimulus program, or tapering.
His comments provided some relief for the markets, but other experts believe the European Central Bank’s policy is key for prolonged recovery.

ECB may pick up where Fed left off
Some analysts speculate the European Central Bank will enact a quantitative easing program of its own to combat recent stagnancy in the markets and problematic low inflation.

“The key factor is language from the ECB suggesting that quantitative easing is actively being considered,” interest rate strategists at Rabobank told The Wall Street Journal. “However, any intransigence from the ECB could see the market shift to primarily being driven by fundamental risk.”

It will likely take a combined effort from the Fed and ECB to support the markets going forward, as each market’s strength or weakness affects the other.

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