Financial markets have continued their recent recovery from October's correction, aided in part by economic data that has not proven as bad as was feared, but mostly by reaffirmed pledges of central bank support around the globe.
While the US central bank finally ended its quantitative easing programme last week ( a move made possible by very solid economic performance), the Bank of Japan upped the ante by significantly expanding its own QE operations (or "experiment", as critics would prefer naming it).
Markets have responded jubilantly, led by Asian equities and corporate bonds (which have been in strong demand this week). We continue to favor this region, as was explained in last week's piece.
For now, the pressure is back on the European Central Bank which is currently dipping its toes into the QE waters. But the markets will not be satisfied with the current scale of the covered and asset-backed bond purchase programme.
Reports are surfacing, however, that the ECB could already be stretching itself, as a growing number of council members are said to disagree with bank president Mario Draghi's perceived aggressiveness and would oppose including government bonds in the bank's QE measures.
So far, the market reaction has been rather limited, but the pressure will certainly be on Mario Draghi at tomorrow's press conference to re-assure markets of continued policy accommodation.
If he fails to do so, volatility could come back to the European markets before we know it.
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