After a shocking start to the year, financial markets rebounded strongly and, for now, the rally continues. A number of factors explain the shift in sentiment. First, data from China, buoyed by stimulus and credit growth, has improved. Second, commodity prices have rebounded. Third, central banks have either eased or backed away from tightening. This has seen USD strength subside and signs of improvement in European credit markets.
The key question is to what extent these effects are transitory or long lasting:
Although this week is light on data, there are FED and BOJ meetings, which may have a bearing on the market’s delicate equilibrium – particularly the path of the USD. More over the page.