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Risk sentiment re-emerged today – Danske Bank

FXStreet (Edinburgh) - Lars Christensen, Chief Analyst at Danske Bank, underlines the better tone in the risk appetite.

Key Quotes

“ECB-chief Mario Draghi’s relatively dovish comments helped lift the sentiment in the global markets yesterday and both the US stock market and the European markets in general ended higher. In the US the S&P500 for the first time ever traded above the 2000 line”.

“However, this morning the Asian stock markets in general are trading a bit lower – ahead of the crucial meeting between the presidents of Russia and Ukraine in Minsk later today”.

“On Monday Ukrainian president Petro Poroshenko dissolved Ukraine's parliament and announced parliament elections on 26 October”.

“In the currency markets the dollar continues to rally, while the euro continues to decline on the back of continued nervousness about the Ukrainian situation and hopes that the ECB finally will act to curb deflationary pressures in the currency union”.

“The yen also traded a bit stronger this morning – a bit of risk aversion is likely to return overnight”.

“In the bond markets the difference between US and German yields continues to widen –particularly in the short-end of the curve, as investors continue to bet on the divergence of monetary policy in the US and the euro-zone”.

“Hence, interest rates are moving closer in the US, while deflationary pressures and a more dovish ECB are pushing down the short end of the European curve. Hence, the difference between 2-year government bond yields in Germany and the US is now the biggest since 2007”.

“The dollar rally versus the euro obviously has to be seen in light of this”.

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