08.06.12 Friday Evening

Hopes for stimulus was the central theme this week as expectations for central bank intervention grew following weakening economic activity across the globe and this caused a strong rally in the first half of the week. 

On Wednesday ECB President Mario Draghi resisted mounting pressure to take further action to boost Europe's fragile economy and reiterated the burden is on the governments to agree upon and implement tighter fiscal unity in order to resolve the crisis. The market was pinning hopes on a rate cut or at least an extension to the discounted loan programme for banks although neither appeared.

For Draghi to intentionally fall short of the markets expectations indicates he is either waiting for the outcome on the Greek elections on the 17th June, or waiting to see if Spain can recapitalize their banks without a bailout, or there is potentially some sort of game-changing remedy to be delivered at the next EU summit on the 28th and 29th June.

The Bank of England and Federal Reserve followed Draghi's cautious, 'wait and see' stance on Thursday as Governor Mervyn King kept rates unchanged for the UK economy and announced no additional monetary easing, and Fed Chairman Ben Bernanke gave a nebulous testimony before the Joint Economic Committee.

China bucked this pattern emerging by cutting it's interest rate by 25 basis points, satisfying some investors’ wishes, which triggered a rally in equities midday Thursday but it soon reversed gains when Bernanke's vague comments gave no insight as to what economic conditions would warrant further stimulus and fuelled the disappointment by declining to list any possible options should the US economy need more support. 

Besides stimulus hopes, risk asset advances earlier in the week were partly sourced from Australia's central bank cutting its rate by 25 basis points and unveiling GDP growth that doubled analyst estimates. Many economists disagree with the GDP figure as a true representation of the Australian economy though and attribute most of the growth to its buoyant mining sector.

Time is running out for Spain to strengthen the balance sheets of its banks and the probability of a bailout scenario is increasing fast. Spread bettors, and traders in general, need to be prepared for an imminent plea for support by the fourth largest Eurozone economy and the ramifications on the markets.

There is growing incongruence between policymakers at the Federal Reserve, ECB and the Bank of England meaning the next meetings could unveil rate cuts or further large scale asset purchases as the pressure builds. It seems as though any action has been postponed for now until we know the future for Greece on the 17th June.

Highlights in equity news include Tullow Oil discovering extra oil off the Ivory Coast which underscores the company's assumptions that there are significant oil reserves across the west coast. Spain's quest to raise tax revenue has led to a good result for Betfair as they are awarded online gaming licences in the country allowing them to offer sportsbook and casino products, and Vodafone are in talks with Australian firm Telstra regarding an acquisition of their New Zealand based operations.