Markets awash with confidence

15.03 AEST, Tuesday 31 July 2012

Markets awash with confidence

By Ben Taylor (Sales Trader, CMC Markets)

The markets are awash with confidence as central bank action is believed to pave the way for a u-turn in the long suffering markets.

A Federal Reserve policy meeting on Wednesday is expected to reiterate it’s “we stand ready” talk and holds the potential to flag fresh stimulus.

The European Central Bank policy meeting on Thursday is expected to spell out the way forward following Mario Draghi’s vow to do whatever it takes. It’s likely that the ECB will resume purchasing Eurozone bonds in coordination with the ESM.

With expectations running high any failings will be met with decisive selling. However if we see both central banks coming to the party get ready for one hell of a ride.

More quantative easing will raise the inflation outlook pushing investors back into commodity plays. The Australian markets recent rise has coincided with a solid rise in the Australian dollar and what seems to be the start of selling in Australian government bonds. It feels like the international investment community is reading itself for a solid bout of risk on buying.

The renewed strength of the Australian banks is the main driver behind the recent gains. Yield chasing and the banks defensive attributes have proved a perfect match for investors looking to get exposure into the Aussie market.
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